November 16, 2017

The US Spends $700 Billion More For the Military While China Spends Its Money For Peace

by John Lawrence

House Republicans and Democrats joined forces Tuesday to decisively approve a defense policy bill that authorizes $700 billion to restock what lawmakers have described as a depleted U.S. military and counter North Korea’s advancing nuclear weapons program. This is even more than President Trump asked for! The bill would exceed the president's $603 billion defense budget request. But it also would blow past the $549 billion cap on defense spending set under the 2011 Budget Control Act by about $72 billion. For the funding scheme to work, lawmakers would need to strike a deal to increase or repeal the budget caps.

Meanwhile China under President Xi is spending money on its Belt and Road initiative to build infrastructure throughout the Asian-African-European land mass creating a new Silk Road. The difference in approach of the world's two largest economies is striking. While the US spends on war, China spends on peaceful development. Which approach do you think will win more friends and influence more people in the long run?

The US busts its budget for war while China's initiative will increase trade and mutual cooperation among Asia, Europe and Africa. The die has been cast. A new axis is forming consisting of China, Russia and Iran. The US, Saudi Arabia - which publicly beheads homosexuals and other non-violent offenders, thereby making a mockery out of US human rights preaching - and Europe are on the other side. Europe which is part of the Euroasian land mass is on the US side for now. Its economic interests may shift as they already have with regard to Russian natural gas. It is a market that Gazprom considers its own backyard as the dominant supplier of European gas and with its monopoly on pipeline exports from Moscow.

The US advantage of physical separation from Europe, which may have kept it out of some European land wars in the past, is an economic disadvantage when it comes to trade with much closer partners. Also its partnership with Saudi Arabia because of oil puts it on the wrong side of history as the world converts to renewable energy and abandons fossil fuels. The Saudi state religion, Wahhabism, preaches death and destruction to infidels and has spawned the major terrorist groups like ISIL, Al Qaeda and Boko Haram. 15 of the 19 9/11 hijackers were Saudis. Then George W Bush decided to invade the wrong country because he didn't want to disassociate himself or the US from his Saudi oil friends.

October 31, 2017

While the US fritters away its money on useless and even frivolous wars, many of them made up and unnecessary, China is building a powerhouse of an economy and is set to exert major influence in many parts of the world. Xi Jinping has no qualms about calling the Chinese system "socialist." Most of the countries of the world who are the US' actual friends are socialist, the Socialist Republic of Vietnam, for instance. After fighting a disastrous war there, now they are our friends and make most of our clothes and shoes so trade is abundant. Trade is a peace time activity, and we don't hold it against Vietnam for winning the war as long as some American corporations can make a profit there off of cheap labor.

All of the Scandinavian countries are socialist even if not in their actual name. Welfare benefits are high including free medical care, free education up through the university level, parental leave, free child care etc etc. Basically, citizens there have all the benefits that Bernie Sanders wants to implement in the US. In Germany education is free up through the university level. In most developed and advanced countries, money is spent by the government on improving the lives of the people instead of on advanced weaponry and military offense. The US has so many military bases in practically every country in the world that our own Senators and Congressmen were surprised to learn we had a military presence in Niger until four soldiers were killed there.

Meanwhile, the US national debt increase by leaps and bounds. Each year the deficit gets bigger. Each year there's no money to spend on infrastructure or on increased social benefits for the people, but plenty for tax cuts for the rich. As the US sinks under a ton of debt, China is moving forward with its Belt and Road initiative with elaborate plans for connecting China via the old Silk Road. China's goal is to be the preeminent powerhouse in Asia, Africa, Europe and the Middle East. The US is a nation on the decline as it only knows how to spend colossal amounts of money on weapons, pretending it's the world's policeman and thereby providing a much needed service, and it has a nincompoop for a President.

As the world changes from fossil fuels to renewable energy, petrodollars, which guaranteed the preeminence of the US economy after the Bretton Woods system failed, will be a thing of the past. China, Russia and some other countries, the BRICS nations, are already agreeing to price oil in other currencies. There is nowhere else for the US dollar to go except for creditor nations to buy up US assets. So the world's policeman, which is already the world's leading debtor nation, will become the world's tenant nation paying rent to the world's creditor nations.

When the chickens come home to roost, the US will have nothing to show except a tremendous load of debt and the rusting hulks of a lot of military equipment. Our empire will have been relegated to the dustbin of history and our legacy will be 300 million-plus people with no health care and no social safety net. But we will be free except for the debt that is. Freedom is just another name for nothing left to lose as Janis Joplin said.

October 21, 2017

Folks in the military-industrial-intelligence establishment are all in a tizzy about Russia putting ads on Facebook. How dare they? Facebook is our American way of communicating with each other. No need to write letters any more. And Twitter. Did they put ads there too? That Putin - up to his old tricks. Trying to corrupt our youth and bring down the US of A.

But China has been exporting fentanyl to the US which has been actually killing numbers of people. But no harm in that. Of course Xi Jinping had nothing to do with it. He's a nice guy. He wouldn't be trying to hollow out our society by actually killing people. No, it must be just a few bad apples unlike Russia where it's Putin that's responsible for putting ads on Facebook which distorted our election. We all know that Americans always fall for an ad because they can't think for themselves. That's been proven time and again. Therefore, Russian ads are more dangerous than Chinese fentanyl.

...it was the USSR's socialist system and message that the US claimed to despise and to be fighting against in the first Cold War. Where is the ideological justification for the new Cold War? There really isn't one. And that is the reason the US has had to focus so much on the personality of Vladimir Putin, imbuing him with a level of power, reach and craziness that he just doesn't have.

The US M-I-I establishment just needs enemies to justify its colossal budget, and it has decided that, come hell or high water, it is going to remake an enemy out of Russia. As Kovalik points out, the mere increase in the US military budget of $54 billion thanks to President Trump is equal to over 80% of Russia's total military budget.

As for messing in our election, the US has messed in the elections of or overthrown at least seven governments including those of Iran, Guatemala and Chile, in some cases ushering in brutal dictatorships. It was mostly to protect US corporate interests. Even Saddam was talking about selling Iraq's oil for currencies other than dollars. That is where his troubles began. If Saddam had remained in power, he would have made short work of ISIS which could never even have gotten started.

So, it’s worth recalling that Russia was promised no NATO expansion, that Russia tried to join the EU and NATO, that Russia has tried many times for mutual disarmament, that Russia helped the U.S. attack Afghanistan, that hostility toward Putin really took off in Washington, D.C., when he refused to help attack Iraq, and that Russia was lied to about Libya. That last one, Kovalik points out, has a lot to do with Putin being in office and with Putin resisting the U.S. in Syria. Russia has tried repeatedly to make peace in Syria, and when Obama finally agreed to a ceasefire in Syria the U.S. military nixed it by bombing Syrian troops (either with Obama’s approval or with Obama’s acceptance).

The US after WW II had a chance to bring peace to the world. It started in that direction with the Marshall plan, but somewhere got derailed into being the world's policeman and, carried away with the trappings of global empire and corporate interests, forgot about creating peace in the world because perpetual war was much too profitable.

Too bad the US decided to become the world's policeman instead of the world's peacemaker.

September 12, 2017

China is planning to ban gas and diesel powered vehicles by 2040. They want electric vehicles to dominate the market. This portends huge changes for the auto industry. Great Britain, France and India have also vowed to end fossil fuel powered cars by 2040. China has huge air quality problems. Smog is casting a pall over Beijing. China wants to dominate as an electric vehicle manufacturer.

As electric vehicles come to dominate the market service stations will have to change. For those who can plug in at home there should, be no problem. For those living in apartments or condos there might not be a place to plug in. So my solution is to drop your car off at a service station where it can get charged up overnight and then take a Lyft or an Uber home. The service station could provide this as a concierge service the way many dealerships now do, and there is no direct charge to the customer. Then in the morning it's back to the service station to pick up the car. This modern service station could also swap out batteries.

Since the China market is huge, US auto manufacturers will have to address it. China will only accept US vehicles if they are manufactured in China under a 50/50 partnership in which technology is shared. This is the kind of arrangement that Trump is up in arms about. China is already ahead of the world in electric car sales. China’s home-grown manufacturers account for 43% of total vehicle sales in China but 96% of all-electric vehicles.

China wants electric battery cars and plug-in hybrids to account for at least one-fifth of its vehicle sales by 2025. Ford and General Motors are already working in China with Chinese manufacturers. Their vehicles may also come to dominate the US market if US manufacturers drag their feet in converting to electric vehicles. Fossil fueled vehicles may become a thing of the past relatively soon, and that would be a good thing to combat climate change and purify air quality.

Ships from the George H.W. Bush Carrier Strike Group simulate a strait transit in the Atlantic Ocean, Dec. 10, 2013. The strike group was conducting a pre-deployment evaluation. (U.S. Navy Photo by Mass Communication Specialist 2nd Class Justin Wolpert/Released)

Even as President Donald Trump faces ever-intensifying investigations into the alleged connections between his top aides and family members and powerful Russian figures, he serves as commander in chief over a U.S. military that is killing an astonishing and growing number of civilians. Under Trump, the U.S. is re-escalating its war in Afghanistan, expanding its operations in Iraq and Syria, conducting covert raids in Somalia and Yemen, and openly facilitating the Saudi’s genocidal military destruction of Yemen.

Meanwhile, China has quietly and rapidly expanded its influence without deploying its military on foreign soil.

A new book by the famed historian Alfred McCoy predicts that China is set to surpass the influence of the U.S. globally, both militarily and economically, by the year 2030. At that point, McCoy asserts the United States Empire as we know it will be no more. He sees the Trump presidency as one of the clearest byproducts of the erosion of U.S. global dominance, but not its root cause. At the same time, he also believes Trump may accelerate the empire’s decline.

McCoy argues that the 2003 invasion of Iraq was the beginning of the end. McCoy is not some chicken little. He is a serious academic. And he has guts.

During the Vietnam war, McCoy was ambushed by CIA-backed paramilitaries as he investigated the swelling heroin trade. The CIA tried to stop the publication of his now classic book, “The Politics of Heroin.” His phone was tapped, he was audited by the IRS and he was investigated and spied on by the FBI. McCoy also wrote one of the earliest and most prescient books on the post 9-11 CIA torture program and he is one of the world’s foremost experts on U.S. covert action. His new book, which will be released in September, is called “In the Shadows of the American Century: The Rise and Decline of U.S. Global Power.”

“The American Century, proclaimed so triumphantly at the start of World War II, may already be tattered and fading by 2025 and, except for the finger pointing, could be over by 2030,” McCoy writes. Imagining the real-life impact on the U.S. economy, McCoy offers a dark prediction...

June 14, 2017

Why Increase the Military Budget Instead of Spending on American People?

by John Lawrence

Photo credit: Reuters/Dominick Reuter

Trump should just forget about Afghanistan altogether. The US has spent almost a trillion dollars on that place with no discernible results. If he really meant what he purports to say, he would take that money and spend it on the American people. Instead, he's captured by the military-industrial complex lobby who never saw a country it didn't want to invade or a situation that it thought couldn't be fixed by more defense spending. What the US should do is team up with other nations who have a terrorist problem and deal with the most extreme elements on a multilateral basis. Russia comes to mind. They've wanted to cooperate with the US to eliminate terrorism for years, but the defense establishment doesn't want anything to do with them. What if peace broke out between the US and Russia? Russia is a threat not because of their military adventurism but because they are a necessary enemy of the US in order to justify the defense budget.

Gorbachev famously said that he was going to deny the US the continued use of the Soviet Union as an enemy. He said, "We are going to do something horrible to you. We are going to take away your enemy." But he was wrong. The military-industrial complex is intent on resurrecting Russia as an arch enemy. Why? There's a huge amount of money at stake for defense contractors, generals, admirals and the whole military-industrial complex. If the US and NATO negotiated a detente with Russia, all the money that goes into defending against Russia could be taken away from the defense establishment and spent on the American people. Also some of it could be spent on relieving the dire needs of people in the world in extreme poverty, much of it caused by war and American military destruction or the destruction by other countries using American bought weapons.

Gorbachev famously said,"We are going to do something horrible to you. We are going to take away your enemy."

But the last thing the US military-industrial complex wants is a decrease in defense spending. The last thing they want is peace in the world. Their profits would diminish. They used to say "give peace a chance" but that would mean decreased profits. So a continual situation of hostility must be kept up even if our so-called enemies want to make peace. Peace is the last thing the US wants. We must keep our traditional enemies in place. Think of how much money would be freed up if we negotiated peace treaties and arms reductions. Not only nuclear weapons and missile reductions like the START treaty, but ALL arms reductions. Think of how much good the US could do in the world just be eliminating Russia as an enemy and spending the money that supports the effort of maintaining hostile relations with Russia in order to deal on a cooperative basis with ISIS, al Qaeda, al Nusra and all the other terrorist organizations.

June 07, 2017

Gov. Jerry Brown and President Xi Jinping discuss the fight against climate change less than a week after President Trump pulled out of the Paris climate accord. (Aaron Berkovich)

Gov. Jerry Brown met with Chinese President Xi Jinping on Tuesday in a rare diplomatic coup that catapults California into quasi-national status as a negotiator with China following the decision last week by President Trump to pull the U.S. out of the Paris climate accord.

Their encounter underlined the extent to which Trump, as he pursues an “America first” foreign policy, is being sidelined on the world stage. Xi spent nearly an hour talking to Brown, one of the administration’s loudest, most powerful critics on the environment.

They discussed global warming and green technology in the Great Hall of the People, a granite-columned building on Tiananmen Square reserved for high-level dignitaries, political gatherings and ceremonial occasions.

“It’s highly significant that the governor of California can meet with the president of China and talk about the foremost issue of our time,” Brown said, sounding especially jovial on the third day of his weeklong China tour. “It’s very clear he welcomes an increased role on the part of California.”

Xi emphasized the state’s unique economic impact and encouraged California to promote ties on the local level in science, innovation and green development, according to a statement from China’s Foreign Ministry.

Brown started his trip with visits to the southern Chinese cities of Chengdu and Nanjing, where he repeated his grim warnings about climate change and signed agreements on clean energy.

Xi “has definitely given the green light for more collaboration between China and California and, I would say, other states through this subnational-level arrangement,” Brown said.

Energy Secretary Rick Perry is also in Beijing for a forum of global energy ministers. The Energy Department has given no indication he will meet with Xi.

The leaders’ discussion appeared as much about symbolism as substance.

“He vaults over the parochial sense of governor to governor, and he vaults into the world of state to nation,” said Orville Schell, director of the Asia Society’s Center on U.S.-China Relations in New York, who wrote a 1978 biography of Brown.

The meeting built on a relationship that started when Xi’s father met Brown in California nearly 40 years ago during his first round as governor. Brown greeted Xi when Xi visited Los Angeles in 2012 as China’s vice president. They spoke again in Rancho Mirage during a 2013 summit with President Obama at the Sunnylands estate and in Seattle two years later.

California has worked with China on environmental issues for years, including zero-emissions vehicles and air pollution control. Chinese officials recently asked the state for guidance with a carbon emissions trading market they plan to launch this year.

“China is making a substantial contribution, as are other places in the world, and we are stepping up the effort,” Brown said.

The two met soon after the top U.S. diplomat in China resigned in protest of Trump’s Paris decision. Embassy spokeswoman Mary Beth Polley confirmed the departure of David Rank — a career diplomat since 1990 who was set to be replaced by Trump’s pick for ambassador — but said only that it was a personal decision.

China is making a substantial contribution, as are other places in the world, and we are stepping up the effort.— California Gov. Jerry Brown

Their conversation also took place on the first day of an international clean energy forum in Beijing, where the Paris decision threatened to turn a mundane meeting of global energy ministers into a raucous debate about national sovereignty and renewed ambitions for an ailing planet.

This is China’s first time hosting the Clean Energy Ministerial, which began amid the city’s characteristic sheen of haze. The eighth annual event resembles something between a trade show and a leadership conference. Clean tech companies camp out in over-lighted booths. Energy leaders swap ideas at lengthy panels.

June 03, 2017

Under the “One Belt, One Road” plan, China is remaking global trade and nurturing geopolitical ties.

One Belt One Road initiative to connect China to Europe (credit:YouTube)

The plan promises more than $1 trillion in infrastructure investments that span 60-plus countries across Europe, Asia and Africa.

While Trump touts "America First" as his watchword, China is undertaking a massive development program that will expedite trade and benefit China and its partners economically as it gains influence throughout much of the world. The US Trans Pacific Partnership which is now defunct was supposed to counter growing Chinese influence, but now China will become the dominant player in the world economy gaining friends and alliances along the way.

An Up-To-Date Silk Road

The Silk Road was an ancient network of trade routes that were for centuries central to cultural interaction originally through regions of Eurasia connecting the East and West. The Silk Road derives its name from the lucrative trade in silk carried out along its length, beginning during the Han dynasty (207 BCE – 220 CE). Trade along this corridor did much to promote political and economic ties among China, Asia, Africa and Europe. China now seeks to build a modern version of the Silk Road.

Unlike the US which seems to impose its western, capitalist democratic values on the rest of the world, China is out to prove that its model is more viable because it is stimulative of commerce without demanding fealty or allegiance to western values in return. Major countries participating include Russia, India, the Philippines, Iran and Iraq. These countries working together will form a relationship that will counterbalance US influence which will be relegated to its allies in Europe, which is having second thoughts about the US thanks to Trump, and South America much of which is a basket case. Trump's insistence on renegotiating NAFTA is sure to distance both Mexico and Canada. His building a wall between the US and Mexico will further anger south and central American countries.

Trump's withdrawal from the Paris climate change accords signals the moment when the US lost its hegemony over the rest of the world. Now China is positioned to fill the void. The US seems incapable of coming up with the $4.6 trillion needed to repair its own infrastructure according to the American Society of Civil Engineers, much less build infrastructure in the rest of the world like China is doing. It's clear that the contingent landmass of Asia, Russia and Africa will fall under Chinese geopolitical influence.

Credit: Dave Simmonds

The American model of loaning money to other nations via Wall Street banks and then demanding austerity measures and privatization of governmental assets when their payments fall short will soon be a thing of the past in terms of appealing to developing nations. Even Europe, notably Germany, is distancing itself from the US. Angela Merkel said recently, "And that is why I can only say that we Europeans must really take our fate into our own hands - of course in friendship with the United States of America, in friendship with Great Britain and as good neighbors wherever that is possible also with other countries, even with Russia." Germany gets a large percentage - about 40% - of its natural gas from Russia. They might decide to participate in China's Belt and Road program now that they seem to be detaching themselves from Great Britain and the US or rather it's the other way around. Britain and the US have detached themselves from Germany thanks to Brexit and Trump.

May 31, 2017

So-called President Trump, leader of the Free World, supposedly (but not much longer), has announced his intention to pull the US out of the Paris climate agreement thus turning the US into an outlier nation with no real presence on the world stage except to exert its military force here, there and everywhere.

...Faced with advisers who pressed hard on both sides of the Paris question, Mr. Trump appears to have decided that a continued United States presence in the accord would harm the economy; hinder job creation in regions like Appalachia and the West, where his most ardent supporters live; and undermine his “America First” message.

Trump seems intent on making the US a third rate nation with a massive military presence while cooler heads like President Xi in China will take over the mantle of leadership on climate change and also economic development in the world. China has announced a massive ($1 trillion) infrastructure program not in China but in other parts of Asia, Africa, the Middle East and even Russia which would increase trade and economic development in all those parts of the world and benefit China in the process. Now that the US has pulled out of the Trans-Pacific Partnership (TPP), which was designed to counteract Chinese influence in those parts of the world, China will be taking over as the predominant player.

That leaves the US with its allies in Europe and South America ( pretty much a basket case). Even European allies such as Germany are wearying of Trump's "America First" mantra. They are adjusting their policies accordingly. Trump recently did not reaffirm the NATO policy of "an attack on one is an attack on all", and he whines to European allies that they aren't paying enough for their defense.

“The actions of the United States are bound to have a ripple effect in other emerging economies that are just getting serious about climate change, such as India, the Philippines, Malaysia and Indonesia,” said Michael Oppenheimer, a professor of geosciences and international affairs at Princeton, and a member of the Intergovernmental Panel on Climate Change, a United Nations group that produces scientific reports designed to inform global policy makers. He added, “it is now far more likely that we will breach the danger limit of 3.6 degrees.” That is the average atmospheric temperature increase above which a future of extreme conditions is considered irrevocable. “We will see more extreme heat, damaging storms, coastal flooding and risks to food security,” Professor Oppenheimer said.

“From a foreign policy perspective, it’s a colossal mistake — an abdication of American leadership ” said R. Nicholas Burns, a retired career diplomat and the under secretary of state during the presidency of George W. Bush. “The success of our foreign policy — in trade, military, any other kind of negotiation — depends on our credibility. I can’t think of anything more destructive to our credibility than this,” he added.

The rest of the world is leaving Trump and the US behind and going forward on all levels to save the world from catastrophic climate change and establish rational policies on everything else. This is probably the moment - Trump's decision to pull the US out of the Paris accords - when the US lost its prestige, position and credibility with the other countries of the world. President Xi Jinping of China, the world’s largest greenhouse gas polluter, has promised that his country would move ahead with steps to curb climate change, regardless of what happens in the United States. While the US fritters away hundreds of billions of dollars each year on military misadventures, China is betting that helping economic development in major parts of the world will contribute to its prestige and influence.

May 19, 2017

May 15th-19th has been designated “National Infrastructure Week” by the US Chambers of Commerce, the American Society of Civil Engineers (ASCE), and over 150 affiliates. Their message: “It’s time to rebuild.” Ever since ASCE began issuing its “National Infrastructure Report Card” in 1998, the nation has gotten a dismal grade of D or D+. In the meantime, the estimated cost of fixing its infrastructure has gone up from $1.3 trillion to $4.6 trillion.

While American politicians debate endlessly over how to finance the needed fixes and which ones to implement, the Chinese have managed to fund massive infrastructure projects all across their country, including 12,000 miles of high-speed rail built just in the last decade. How have they done it, and why can’t we?

A key difference between China and the US is that the Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local governments, and the remaining 40-50% is provided by loans from federally-owned banks and financial institutions. Like private banks, state-owned banks simply create money as credit on their books. (More on this below.) The difference is that they return their profits to the government, making the loans interest-free; and the loans can be rolled over indefinitely. In effect, the Chinese government decides what work it wants done, draws on its own national credit card, pays Chinese workers to do it, and repays the loans with the proceeds.

The US government could do that too, without raising taxes, slashing services, cutting pensions, or privatizing industries. How this could be done quickly and cheaply will be considered here, after a look at the funding proposals currently on the table and at why they are not satisfactory solutions to the nation’s growing infrastructure deficit.

The Trump administration, road privatization industry, and a broad mix of congressional leaders are keen on ramping up a large private financing component (under the marketing rubric of ‘public-private partnerships’), but have not yet reached full agreement on what the proportion should be between tax breaks and new public money—and where that money would come from. Over 500 projects are being pitched to the White House. . . .

Democrats have had a full plan on the table since January, advocating for new federal funding and a program of infrastructure renewal spread through a broad range of sectors and regions. And last week, a coalition of right wing, Koch-backed groups led by Freedom Partners . . . released a letter encouraging Congress “to prioritize fiscal responsibility” and focus instead on slashing public transportation, splitting up transportation policy into the individual states, and eliminating labor and environmental protections (i.e., gutting the permitting process). They attacked the idea of a national infrastructure bank and . . . targeted the most important proposal of the Trump administration . . . —to finance new infrastructure by tax reform to enable repatriation of overseas corporate revenues . . . .

In a November 2014 editorial titled “How Two Billionaires Are Destroying High Speed Rail in America,” author Julie Doubleday observed that the US push against public mass transit has been led by a think tank called the Reason Foundation, which is funded by the Koch brothers. Their $44 billion fortune comes largely from Koch Industries, an oil and gas conglomerate with a vested interest in mass transit’s competitors, those single-rider vehicles using the roads that are heavily subsidized by the federal government.

Clearly, not all Republicans are opposed to funding infrastructure, since Donald Trump’s $1 trillion infrastructure plan was a centerpiece of his presidential campaign, and his Republican base voted him into office. But “establishment Republicans” have traditionally opposed infrastructure spending. Why? According to a May 15, 2015 article in Daily Kos titled “Why Do Republicans Really Oppose Infrastructure Spending?”:

Republicans – at the behest of their mega-bank/private equity patrons – really, deeply want to privatize the nation’s infrastructure and turn such public resources into privately owned, profit centers. More than anything else, this privatization fetish explains Republicans’ efforts to gut and discredit public infrastructure . . . .

If the goal is to privatize and monetize public assets, the last thing Republicans are going to do is fund and maintain public confidence in such assets. Rather, when private equity wants to acquire something, the typical playbook is to first make sure that such assets are what is known as “distressed assets” (i.e., cheaper to buy).

[T]here is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to [privatize] the railroads, first thing to do is defund them, then they don’t work and people get angry and they want a change. You say okay, privatize them . . . .

What’s Wrong with Public-Private Partnerships?

Privatization (or “asset relocation” as it is sometimes euphemistically called) means selling public utilities to private equity investors, who them rent them back to the public, squeezing their profits from high user fees and tolls. Private equity investment now generates an average return of about 11.8 percent annually on a ten-year basis. That puts the cost to the public of financing $1 trillion in infrastructure projects over 10 years at around $1.18 trillion, more than doubling the cost. Moving assets off the government’s balance sheet by privatizing them looks attractive to politicians concerned with this year’s bottom line, but it’s a bad deal for the public. Decades from now, people will still be paying higher tolls for the sake of Wall Street profits on an asset that could have belonged to them all along.

One example is the Dulles Greenway, a toll road outside Washington, D.C., nicknamed the “Champagne Highway” due to its extraordinarily high rates and severe underutilization in a region crippled by chronic traffic problems. Local (mostly Republican) officials have tried in vain for years to either force the private owners to lower the toll rates or have the state take the road into public ownership. In 2014, the private operators of the Indiana Toll Road, one of the best-known public-private partnerships (PPPs), filed for bankruptcy after demand dropped, due at least in part to rising toll rates. Other high-profile PPP bankruptcies have occurred in San Diego, CA; Richmond, VA; and Texas.

Countering the dogma that “private companies can always do it better and cheaper,” studies have found that on average, private contractors charge more than twice as much as the government would have paid federal workers for the same job. A 2011 report by the Brookings Institution found that “in practice [PPPs] have been dogged by contract design problems, waste, and unrealistic expectations.” In their 2015 report “Why Public-Private Partnerships Don’t Work,” Public Services International stated that “[E]xperience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies.” They also divert public money away from the neediest infrastructure projects, which may not deliver sizable returns, in favor of those big-ticket items that will deliver hefty profits to investors.

A Better Way to Design an Infrastructure Bank

The Trump team has also reportedly discussed the possibility of an infrastructure bank, but that proposal faces similar hurdles. The details of the proposal are as yet unknown, but past conceptions of an infrastructure bank envision a quasi-bank (not a physical, deposit-taking institution) seeded by the federal government, possibly from taxes on the repatriation of offshore corporate profits. The bank would issue bonds, tax credits, and loan guarantees to state and local governments to leverage private sector investment. As with the private equity proposal, an infrastructure bank would rely on public-private partnerships and investors who would be disinclined to invest in projects that did not generate hefty returns. And those returns would again be paid by the public in the form of tolls, fees, higher rates, and payments from state and local governments.

There is another way to set up a publicly-owned bank. Today’s infrastructure banks are basically revolving funds. A dollar invested is a dollar lent, which must return to the bank (with interest) before it can be lent again. A chartered depository bank, on the other hand, can turn a one-dollar investment into ten dollars in loans. It can do this because depository banks actually create deposits when they make loans. This was acknowledged by economists both at the Bank of England (in a March 2014 paper entitled “Money Creation in the Modern Economy”) and at the Bundesbank (the German central bank) in an April 2017 report.

Contrary to conventional wisdom, money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The Bank of England report said that private banks create nearly 97 percent of the money supply today. Borrowing from banks (rather than the bond market) expands the circulating money supply. This is something the Federal Reserve tried but failed to do with its quantitative easing (QE) policies: stimulate the economy by expanding the bank lending that expands the money supply.

The stellar (and only) model of a publicly-owned depository bank in the United States is the Bank of North Dakota (BND). It holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota. According to reports, the BND is more profitable even than Goldman Sachs, has a better credit rating than J.P. Morgan Chase, and has seen solid profit growth for almost 15 years. The BND continued to report record profits after two years of oil bust in the state, suggesting that it is highly profitable on its own merits because of its business model. The BND does not pay bonuses, fees, or commissions; has no high paid executives; does not speculate on risky derivatives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits. The profits return to the bank, which distributes them as dividends to the state.

The federal government could set up a bank on a similar model. It has massive revenues, which it could leverage into credit for its own purposes. Since financing is typically about 50 percent of the cost of infrastructure, the government could cut infrastructure costs in half by borrowing from its own bank. Public-private partnerships are a good deal for investors but a bad deal for the public. The federal government can generate its own credit without private financial middlemen. That is how China does it, and we can too.

For more detail on this and other ways to solve the infrastructure problem without raising taxes, slashing services, or privatizing public assets, see Ellen Brown, “Rebuilding America’s Infrastructure,”a policy brief for the Next System Project, March 2017.

May 06, 2015

Qualcomm has been fined almost a billion dollars by China for violating its antimonopoly law. China has the world's most internet users and the largest smartphone market so Qualcomm has to tread gingerly with the authorities there since it doesn't want to be booted out of the world's most lucrative market. The fine will knock 58 cents a share off Qualcomm’s earnings for the year. Qualcomm CEO Steven M. Mollenkopf thinks paying the fine will make Qualcomm better positioned to cash in in the future.

This could be another front in the brewing economic conflicts between China and the US. To sweeten the pot Qualcomm has offered China deep discounts on licensing its patents for certain systems and agreed to partner with Chinese companies. But all this could be construed as a bribe in order to get access to the Chinese market.

Since half of Qualcomm’s revenue comes from China, there is a need to be China's "friend" as Chinese internet czar, Lu Wei, pointed out. And that doesn't just mean on Facebook. China has considerable leverage over Qualcomm and a host of other American corporations who are all eager to make money in China. China knows this and is flexing its muscles in an apparent show of economic nationalism.

Although regulation is a bad word in the US, not so in China. China's regulator is the National Development and Reform Commission aka the N.D.R.C. It is getting more aggressive in giving out fines. This could correspond to China's push to develop its own chip market so it won't have to import them from companies like Qualcomm. Since Qualcomm makes most of its money from licensing its patents, the future looks ominous for the San Diego chipmaker. China hasn't always shown the greatest respect for foreign patent holders, and will probably have many patent workarounds up its sleeve.

The Qualcomm Drama: Rich People Fighting Other Rich People Over Who Gets a Bigger Slice of the Money Pie

By now it's conventional wisdom that the ratio between CEO pay and the pay of the average worker has reached astronomical proportions. Huffington Post reports:

The ratio of CEO-to-worker pay has increased 1,000 percent since 1950, according to data from Bloomberg. Today Fortune 500 CEOs make 204 times regular workers on average, Bloomberg found. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950.

“When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel,” Roger Martin, dean of the University of Toronto’s Rotman School of Management, told Bloomberg.

Scrapping like hyenas for every morsel aptly describes the plight of Qualcomm management and Qualcomm shareholders. In an earlier article I wrote about how retiring CEO Paul Jacobs gave his employees a homework assignment last March: go home and tell your wife and family to tell Congress to give Qualcomm a tax break. It seems that Qualcomm has a lot of money parked offshore which should be obvious since they do most of their business in China. Before they can "repatriate" that money, they have to pay taxes to the US government on it so they lobby Congress for a tax break in order to bring it home tax free or almost tax free.

The so-called tax holiday has been tried once before with CEOs promising to use the money to build new plants and create new jobs in the good ole US of A. It never happened. Instead CEOs used the money to buy back their own stock thereby raising its price. The idea is that this benefits shareholders who can then sell their stock at a higher price and cash in.

However, a new wrinkle has emerged in the stock buyback business. Instead of it raising the price so shareholders can cash in, Qualcomm has figured out a way to raise the price so CEOs can cash in and leave shareholders grasping for thin air. The U-T reported "Instead of duly enriching the shareholders who own Qualcomm, its executives have leveraged dominance of the world’s smartphone technology to enrich themselves."

As the price of Qualcomm's stock went up, the hyenas - meaning outgoing CEO Paul Jacobs and incoming CEO Steven Mollenkopf - figured out a way to channel the increased largesse not into shareholder profit but into executive pay for themselves. Investors holding large blocks of Qualcomm stock like Jana Partners were not amused.

As overall executive compensation jumped 180 percent last year, Qualcomm gave special stock grants worth $95 million to just two executives. Paul Jacobs, the co-founder’s son who gave up the CEO job way back in March 2014, got $45 million that vests over five years.

The new CEO, Steve Mollenkopf, received a staggering $50 million over five years. President Derek Aberle received grants worth $26.6 million.

Jana Partners, a hedge fund, was founded in 2001 by Barry Rosenstein. Jana, which manages more than $11 billion, is known for buying stakes in companies and then seeking to work with management as it pushes for change. In other words they are a thorn in Qualcomm's side. They've been pushing to break up Qualcomm into two companies - one being the chip making operation and the other being the patent licensing part.

So Paul Jacobs, failing in his quest for a tax holiday, nevertheless, creatively figured out a way to make $45 million for himself while stiffing Qualcomm shareholders. This was all done by means of stock grants. Qualcomm can grant its executives as many stock shares as it wants to. This means that there are more outstanding shares of stock which dilutes the price per share. So Qualcomm's trick was to buy back some of its stock thereby decreasing the number of outstanding shares and increasing the price per share, and then to turn around and grant stock to those three executives so that the final result was that the exact same number of shares, more or less, were outstanding as there were before this maneuver took place.

The U-T opined "Instead of using buybacks to give owners more of the company over time, Jacobs has effectively recycled shareholder profits into executive pay."

So three hyenas in the form of Jacobs, Mollenkopf and Aberle swiped the money off the table before another hyena in the form of Jana Partners could get to it. Had Jana Partners been successful and gotten to the money first, its rich shareholders could have reaped the profits instead of Qualcomm executives and CEO pay would have decreased. Getting back to the obscene ratio between CEO pay and worker pay, in neither case would workers have benefited even if in this instance CEO pay had diminished. The benefits would have gone to another set of rich hyenas, Jana Partners.

Ironically, workers have no leverage in this scenario whatsoever. Even if executive pay decreases, the only likely beneficiaries are other rich people - shareholders - not workers.

Last week Qualcomm cut its earnings forecast for the second time this year after reporting that its past quarter’s earnings dropped 45 percent from the prior year. Samsung is not going to use its Snapdragon chip this year, but Qualcomm is optimistic. Samsung has invited them to produce their next chip in Samsung's own factory. Like a moth to a flame, Qualcomm will let Samsung oversee its chip making operation. I wonder what could go wrong with that? As other companies rev up their own chip making operations, Qualcomm will not only lose the chip business, but its patents, from which it gets most of its income, will be rendered worthless as Samsung and others devise workarounds to Snapdragon.

China is also revving up its chip making operations which will result in less of a need for Qualcomm's Snapdragons. They are afraid Qualcomm has built in a "back door" which would allow the US to spy on Chinese officials. Maybe Paul Jacobs got out just in time.

August 02, 2014

China is doing all it can to keep genetically modified corn from entering its borders. And they started by putting the brakes on U.S. grain imports. But when will U.S. farmers turn away from GM corn?

China has somewhat of a history when it comes to refusing GMOs from the United States. Now, due to fears that genetically modified grains will find their way in, China recently put the brakes on some U.S. grain imports, imports that amount to hundreds of thousands of tons per month. According to Bloomberg Businessweek, the move by Chinese regulators is just the latest in an effort from the country to keep GM corn outside of its borders.

The grain in question is a corn product known as DDGS, or dried distillers’ grains. Used in animal feed production, it is essentially a leftover from when corn is processed into ethanol.

The concern is that MIR 162, a genetically modified strain of corn, will find its way in among the DDGS despite not being approved by the Chinese government. Their concern isn’t without cause. Of 613,678 tons that were reported at Chinese customs in April, 600,000 tons tested positive for MIR 162.

Almost half of all U.S. corn in made into ethanol, leaving plenty of DDGS to go around. China is the United States’ top importer of DDGS. Last year they bought 34 percent of DDGS exports, more than twice as much as Mexico, who imported the second-largest amount.“It looks like the government is determined to stop any form of corn imports from the U.S.,” said Sylvia Shi, from the Shanghai-based agricultural research company Shanghai JC Intelligence Co.

“This development did not come as a total surprise, following as it did China’s recent rejection of 1.1 million metric tons of Syngenta corn containing the unapproved GMO strain MIR162. Official news said that though Syngenta has repeatedly submitted the Lepidoptera-resistant GM corn for review and import into China, the documenting information and experimental data were incomplete and problematic. Thus the corn is still under assessment and has not been approved for import.”

And all of this isn’t terribly surprising. China previously destroyed a total of at least three genetically modified corn shipments with origins from the United States in a move that echoes the way in which the nation of Hungary actually went and destroyed acres upon acres of Monsanto’s GMO corn fields. The soveriergn state also refused over 887,000 tonnes of GMO corn shipped from the U.S. since just last November.

The import stoppage is seen as a “win-win” for China, who believes short-term losses of DDGS supply will eventually lead to gains when U.S. farmers see the value in turning away from GM corn. One can only hope it will be this simple.

October 06, 2012

On September 23, in Taiyuan, China, about 2,000 workers erupted in a burst of anger, leaving a factory compound scarred with broken glass and flames. But the trouble was just as quickly extinguished, and it’s now back to business as usual at Foxconn, one of the world's premier electronics makers.

While details of the fracas, which left many injured, are still emerging, the pattern is familiar: the uprising reflected increasing unrest throughout China’s manufacturing workforce, as well as the intense workplace stress that has become a hallmark of the Foxconn empire since a string of well-publicized worker suicides in 2010. The question now is whether this tension will ultimately be channeled into direct action that might yield long-term changes in the global production chain that manufactures our prized gadgets.

In contrast to the despair workers displayed in 2010, the riot represents an angrier response to the everyday miseries of assembly-line work, which is mind-numbing, exhausting, and low-paid, and which largely feeds off of a steady flow of migrants seeking any kind of stable work in the city.

One account posted on sina.com (translation via U.S.-based China Labor Watch) suggests the violence began with a scuffle involving migrant workers and security forces, and quickly metastisized once “a guard stabbed a worker from Shandong and seriously wounded him”:

At this moment, all workers from Shandong were enraged and started to fight the guards. At first the guards were aggressive since there were hundreds of them. However, as more and more workers from Shandong gathered, the guards were overpowered and beaten. Realizing that they were outnumbered, the guards started to run away.

Soon, others joined in: “a lot of [workers] lost their minds and smashed everything they saw, including the supermarket and internet cafe on the campus.” Photographs ofthe scene appear to confirm this.

But neither the exact extent of the violence nor how many participated are known. Predictably, Foxconn has denied damage to the facilities, according to the New York Times. At the same time, with thousands of police reportedly sent in to suppress the protests, there should be some concern about the authorities invoking workplace violence as a pretext for a wider anti-worker crackdown.

Geoffrey Crothall, spokesperson of the Hong Kong-based China Labour Bulletin (CLB), tells Working In These Times via email:

[T]he vast majority of work disputes, strikes and protests are peaceful. Even if police are called in, most disputes do not escalate into violence. That said, given the fact that many workers have to suppress anger and resentment against their employer because there are no formal channels for resolving grievances, we should not be surprised when violence does break out.

The riot suggests that while workers may not yet have a clear agenda for improving working conditions, they are growing more conscious of the power of collective action. Their rage is further justified by the police reaction, indicating local authorities' alignment to a powerful multinational corporation.

A translated online dialogue published by CLB indicates that long before the clash, workers were suffering from oppressive conditions:

A worker, who said he had been employed at Taiyuan Foxconn for three years, highlighted the failure of the Foxconn trade unions to properly represent workers’ interests. … He hoped workers could handle the conflict in a rational manner in order to avoid unnecessary casualties.

This post was immediately challenged by another worker, who responded that workers had not meant to instigate a riot but that they had no other way to address injustice. When they called a hotline to complain about the abusive security guards, for example, they were told their complaint could not be handled.

According to Li Qiang, executive director of China Labor Watch, the outburst was long in the making due to the social dislocation and isolation of migrants, who “are far from their homes, and will naturally feel more vulnerable to mentally stressed. If the management does not pay attention to such issues and even suppress their with heavy workload and inhumane treatment, such things will happen again.” He noted that there have been previous workplace conflicts, “but the company ignored it and kept the same management style. That is why we believe the root cause of this riot is Foxconn, not just a random case.”

Foxconn’s most prominent client, Apple, has generally had far more to say about its shiny product line than about Foxconn workers (although the Taiyuan plant, according to one source, was not a formal iPhone assembly plant, others say it may have made Apple parts). But it has boasted an elaborate corporate social responsibility campaign, commissioning the Fair Labor Association, a mainstream U.S. auditing group, to investigate conditions at Foxconn factories. As we’ve reported previously, the FLA’s recent report card was mostly favorable, but noted inaction on “the most challenging action items--such as compliance with Chinese labor law regarding hours of work.”

CLB’s research, however, suggests that young Chinese are becoming more effective at pressuring their bosses for fairer treatment. These actions will become more crucial if China’s boom, and low-wage labor market, continue to cool down.

As labor scholar Eli Friedman has pointed out, neither the state, nor the Communist Party’s official unions, nor even foreign watchdog groups, can bring about radical change. That will only be developed though homegrown, street-level worker activism that channels rage into a focused movement for economic justice in China’s volatile labor system.

We don’t know how many more riots it will take before the companies, officials and consumers who have taken advantage of China’s exploited workforce over the years recognize that nation's tattered social contract must be revised. But workers have already begun writing the second draft.

Michelle Chen is a contributing editor at In These Times. She is a regular contributor to the labor rights blog Working In These Times, Colorlines.com, and Pacifica's WBAI. Her work has also appeared in Common Dreams, Alternet, Ms. Magazine, Newsday, and her old zine, cain.

April 05, 2012

A constitution defines the architecture of a society. In the American case, the constitution is over 200 years old, the oldest constitution of any advanced nation. Nations much older than the US have newer constitutions. Why? Because they have rewritten their constitutions - some of them multiple times. Yet in the US the Constitution is taken as something written in stone; it's considered to be irrevocable, eternal, irreproachable, unchangeable. It is given the status of a divine oracle. It is nothing of the sort. It is a remarkable document taking into account the best thinking of the Enlightenment which took place hundreds of years ago. But to assert that it couldn't be rewritten to come up with improvements based on the fact that the world is a much different place today than it was 200 years ago is a form of lunacy and intellectual backwardness.

What should be happening is that the US Constitution should be gone over line by line with the intent to come up with a document far better suited to the 21st century than the present document is, and this should be done by people far more knowledgable and far better suited to the task than I am, people who have studied the constitutions of other countries, people who are well versed in the law, people who have original ideas, people who have taken into account criticism of the US Constitution as it is written now. Even though there is a provision for amending the present constitution, it might be better to scrap it and start over with a whole new document. Alternative constitutions should be written even without the notion that they might ever be implemented just for the exercise of proposing something better than what we have today. This would be a good project for graduate students or even high school seniors. To many people the idea of an alternative constitution may be heresy just as the idea that every word of the Bible may not have been dictated by God is heresy or treason. Rather than view the US Constitution or any constitution as a document revealed from on high or set in stone, it should be viewed as a working document intended to bring about the best results based on philosophical principles and practical results.

It is not hard to see that our present political system is not working for the following reasons: 1) Money is corrupting politics both in terms of campaign financing and in terms of lobbying activities. The Supreme Court Citizens United decision puts money in politics on steroids. 2) The electoral college and winner take all system prevent politicians from being elected on the principle of one person, one vote. 3) The first past the post voting system is antiquated compared with proportional representation and range voting. 4) Divided government does not work; the filibuster can kill any legislative proposal. 5) The majority of the Supreme Court can strike down any legislation it doesn't agree with based on their personal political belief system. In short the bicameral legislature, the executive branch and the judicial branch are all in need of major rethinking and revising. The current system produces nothing but gridlock unless one party controls all three branches of government. The Affordable Care Act popularly known as Obamacare barely escaped the filibuster to pass both Houses of Congress and to be signed into law by Obama. However, now it looks like it will not escape the Supreme Court which will most likely overrule it. Some of the conservative members of the Court like Scalia and Thomas look like political hacks who will vote their conservatives biases without any pretense of being impartial interpreters of the Constitution and without any respect for historical precedent.

I am no expert. Neither have I studied line by line our current constitution or the constitutions of other countries. Nor am I a legal scholar. This blog is a call for those who are so inclined to contribute the benefits of their thinking in this regard and their work will be published here if it is deemed to be in a constructive vein and appropriate. However, off the top of my head here are some of the things I would change. The First Amendment - Free Speech - needs to be changed to not allow lying to the public either in terms of political ads and TV and radio talk shows in which lies are protected by the First Amendment or in terms of commercial ads in which lying is protected by the First Amendment. Lying should not be protected speech. Neither should money be considered protected free speech. There is no level playing field when those with money can get their viewpoints across and those without money have no voice in the political arena. Negative attack ads have degraded the political process and have little if any redeeming social value. Hucksterism runs rampant with little if any protection of the consuming public except caveat emptor or buyer beware.

The first past the post, winner take all voting system which makes anything other than a two party political system unworkable and unfeasible, should be scrapped in favor of range voting or proportional representation which would lead to a multi-party system in which minority viewpoints would be better represented. Economic rights as well as political rights should be spelled out as they were in the UN Declaration of Human Rights. The present US constitution has nothing to say about economic rights at all. As it is in most countries, health care as well as public education should be a right. There should be a right to minimal levels of food and shelter for those who for whatever reason are unable to provide a minimally decent level of economic well-being for themselves.

Here are Articles 26 and 27:

Article 25.

(1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

Article 26.

(1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.

(2) Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace.

(3) Parents have a prior right to choose the kind of education that shall be given to their children.

Any constitution incorporates the philosophical principles of freedom and equality in various degrees since total freedom and total equality are antithetical and cannot be incorporated in the same constitution. The exact blend of these two principles should be fashioned in such a way as to give each citizen as much freedom as possible consistent with the principle that "we are all in this together." The social Darwinism of the present day Republican party should be repudiated.

It should be mandatory to study the constitutions of the major countries in the world today. For instance take China. The Constitution of the People's Republic of China contains a lot of very interesting and informative stuff. People should read it. It deserves much study. A cursory reading which is all I have time for right now reveals much which contradicts the prevailing ignorant notions about China which American politicians bandy about. For one thing China has a combination of collectivist or state run enterprises and individually oriented or private enterprise. They seemed to have tweaked this arrangement to maximize the best results from each sector as is evidenced by their rapid economic growth and their being on track to becoming the world's largest economy very soon. China also has the traditional three branches of government - executive, legislative and judicial - although the power distribution among these three branches probably favors the executive over the other two branches with the result that they don't experience the gridlock that the current US system produces.

China guarantees more individual rights, including economic rights, in their constitution than the US does although there probably is a gap between the ideal and the real on many levels just as there is in every other country. In other words what is specified on paper does not always represent the reality as practiced, but rather an ideal to be striven for. The Preamble is a bunch of claptrap about socialism and communism that is much outdated compared to the reality on the ground in China today. In fact the first amendment to the Chinese constitution softens the emphasis on collectivist enterprise considerably:

AMENDMENT ONE(Approved on April 12, 1988, by the 7th NPC at its 1st Session)

1. Article 11 of the Constitution shall include a new paragraph which reads: "The State permits the private sector of the economy to exist and develop within the limits prescribed by law. The private sector of the economy is a complement to the socialist public economy. The State protects the lawful rights and interests of the private sector of the economy, and exercises guidance, supervision and control over the private sector of the economy."

2. The fourth paragraph of Article 10 of the Constitution, which provides that "no organization or individual may appropriate, buy, sell or lease land or otherwise engage in the transfer of land by unlawful means," shall be amended as: "no organization or individual may appropriate, buy, sell or otherwise engage in the transfer of land by unlawful means. The right to the use of land may be transferred according to law."

Here is Article 11:

Article 11. The individual economy of urban and rural working people, operated within the limits prescribed by law, is a complement to the socialist public economy. The state protects the lawful rights and interests of the individual economy. The state guides, helps and supervises the individual economy by exercising administrative control.

One thing I noticed in the Chinese Constitution is that the word "love" was mentioned: "The state advocates the civic virtues of love for the motherland, for the people [!], for labour, for science and for socialism;" I doubt if this word has been much used in any other constitution surely not in the US one. Perhaps verbiage such as "Fellow citizens should strive to love one another in the spirit that we are all in this together" should be added to any new constitution to ameleriorate the selfish sentiment that "the pursuit of [individual] happiness" (which comes from the Declaration of Independence) connotes. I would like to follow up this blog with a much more detailed analysis of the Chinese constitution as well as of other constitrutions. The German and French constitutions should also be very interesting to study. I invite other independent scholars to do the same and to submit their writings to this blog. The internet makes this kind of research possible. Thank God!

Finally, as an initial step to define a society which actually works on behalf of its people instead of one that only works for the upper 1%, I would suggest the following. I envision a three tier economic system. First, the minimal commanding heights of the economy, namely, the energy and banking sectors should be publicly owned. This would eliminate the scams, the financialization, the speculation, the boom and bust cycles, the financial meltdowns and the exploitation of consumers which the current system has amply and recently demonstrated. It would eliminate speculation in oil and other commodities which has driven up gas prices and threatens to drive the whole economy into another recession or worse. The current high gas prices are caused to a large extent by speculation in the commodities markets. According to Senator Bernie Sanders, 80% of the futures contracts for oil are owned by Wall Street banks. The solution is to get out of the "world oil market" to the greatest extent possible as China is evidently doing by making country to country deals which bypass the market. China's oil-for-loan deals with Venezuela and other countries effectively bypass the world oil market entirely and they also control prices at the pump.

In the US on the other hand, US taxpayers practically give away a resource they technically own (oil) to the big oil companies who then price the oil sold back to consumers on the world oil market which allows a "speculation" tax to be added to each gallon at the pump as Senator Bernie Sanders has pointed out. Norway charges oil companies a 50% royalty on oil extracted from its country which goes into a fund that provides pensions for old people. Still Norway relinquishes control over the price of oil once the royalty has been paid letting the price at the pump be set by the world oil market. This in my opinion is a big mistake. They should reserve enough oil for domestic consumption at a reduced price and then let the excess be sold abroad on the oil market thus reducing prices at the Norwegian pump. The US taxpayers/citizens neither receive much of a royalty for oil extraction nor do they control the price at the pump for domestic production/consumption making up the difference with purchases on the world oil market over which, of course, they have no control.

Secondly, the middle tier would consist of an entrepreneurial sector in which entrepreneurs are given free rein to innovate and develop new products and procedures and to accelerate technological progress. This sector would be supported by venture capital provided by the state as well as private capital. By encouraging this sector the best aspects of the free enterprise system are actually incorporated into the overall system and entrepreneurs are amply rewarded within limits. It is anticipated that individual ownership of patents, and other intellectual property such as trademarks and trade secrets will cease at some point just as they do in present day America. When production has reached the stage of commodification, when innovation has ceased, the production process should be turned over to the third tier, worker/consumer owned enterprises in which workers, not investors, are the primary stakeholders who democratically determine how the enterprises are to be run. In other words they sit on the Board of Directors as workers, consumers and owners. The transfer of property from the entrepreneur owned free market which might be set up much as corporate enterprises are set up today, in other words a top down distatorship, to worker/consumer owned enterprises should be overseen by the government to insure an orderly transition. Shareholders and stakeholders in the original company could be bought out (compensated) by government.

The first tier is somewhat similar but obviously not identical to the Chinese system. The second tier is somewhat similar but not identical to the American capitalist system. The third tier would be the enterprise level in which mature industries would be cooperatively run in accordance with the principles of economic democracy. In other words the workers would own and benefit from the products and services they produce, and enterprises would not be owned by shareholders who are mererly investors with no day to day role in production. These enterprises would be similar to Mondragon, a Spanish cooperatively owned and run enterprise. According to Wikipedia: "Currently it is the seventh largest Spanish company in terms of asset turnover and the leading business group in the Basque Country. At the end of 2010 it was providing employment for 83,859 people working in 256 companies in four areas of activity: Finance, Industry, Retail and Knowledge. The MONDRAGON Co-operatives operate in accordance with a business model based on People and the Sovereignty of Labour, which has made it possible to develop highly participative companies rooted in solidarity, with a strong social dimension but without neglecting business excellence. The Co-operatives are owned by their worker-members and power is based on the principle of one person, one vote."

As envisioned, these enterprises would eliminate exploitation of workers, and workers could look forward to control over their own time and energy using a system such as Preferensism that I have developed. Workers could set up their own time schedules and pay preferences within reason and considering the demands of co-workers. A safety net would protect workers at this level in case of illness, disability and old age. The resulting wealth coming from the advancement of technology is, therefore, effectively shared. This third tier concept is significantly different from what exists in China at the present time since they allow child labor and all sorts of workplace exploitation as has been reported at Foxconn which produces Apple ipods and other tech devices. China has allowed their free enterprise or entrepreneurial sector to run rough shod over their sector of production workers and their socialist principles which preclude exploitation of workers. This has also produced many Chinese billionaires and has done a lot to grow economic development and GNP at the expense of run of the mill production workers.

What I am proposing is a free wheeling entrepreneurial sector combined with a worker owned, cooperative production sector combined with public control of the minimal commanding heights of the economy including the banking and energy sectors. This is an initial top of my head approach to defining part of what should be included in the economic aspects of a new constitution. It is by no means a definitive or final version nor have I gone into detail here regarding the definition of the political system or individual rights. These have only been hinted at at best in this initial article on societal architecture.

By CHARLES DUHIGG and KEITH BRADSHER

When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Apple has become one of the best-known, most admired and most imitated companies on earth, in part through an unrelenting mastery of global operations. Last year, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

However, what has vexed Mr. Obama as well as economists and policy makers is that Apple — and many of its high-technology peers — are not nearly as avid in creating American jobs as other famous companies were in their heydays.

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

But while Apple is far from alone, it offers a window into why the success of some prominent companies has not translated into large numbers of domestic jobs. What’s more, the company’s decisions pose broader questions about what corporate America owes Americans as the global and national economies are increasingly intertwined.

“Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, the chief economist at the Labor Department until last September. “That’s disappeared. Profits and efficiency have trumped generosity.”

Companies and other economists say that notion is naïve. Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need, executives say.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation. Doing otherwise risks losing even more American jobs over time, as evidenced by the legions of once-proud domestic manufacturers — including G.M. and others — that have shrunk as nimble competitors have emerged.

October 20, 2011

Marx's chief criticism of capitalism was that it led to the centralization and concentration of capital. In a society comprised of small scale enterprises such as the yeomanry and small scale farmers of early America, an America romanticised and favored by Thomas Jefferson, capital was widely dispersed in the form of small land holdings and businesses which replicated themselves throughout the US with different owners in every community. For example, each small town had a blacksmith shop owned by a single person who owned one and only one blacksmith shop. He didn't franchise his blacksmith shop operation all over the country calling it perhaps "Blacksmiths Are Us." He didn't go public with his blacksmith shop attracting investors from all over the country who bought shares in his blacksmith shop. He didn't acquire other blacksmith shops and merge with yet more blacksmith shops. He didn't expand into other towns creating blacksmith shop megastores and forcing Mom and Pop blacksmiths out of operation. He didn't open a furniture store as an accompaniment to his blacksmith shop. All the techniques of modern capitaliasm - mergers and acquisitions, franchise operations, big box megastores - produce a centralization and concentration of capital or ownership in fewer and fewer hands. Instead of capital being dispersed in many hands, capital is concentrated in the hands of a few and the rest are left to be employees with zero capital assets.

The statistics are startling. Today the richest 400 Americans own more wealth than the bottom 150 million American citizens. According to Senator Bernie Sanders, six of the biggest banks own wealth equivalent to 60% of US GDP. Two of these banks, Citibank and Goldman Sachs, have been convicted of fleecing investors by selling them securities they knew were bogus and then betting that those securities would go bad. The top 1% earn 25% of the nation's income and own 40% of the nations's wealth. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. Despite owning the lion's share of wealth and income, three years ago American taxpayers provided the wealthy banks with the largest bailout in history. Furthermore, the Federal Reserve provided more than $16 trillion in low-interest loans to every major financial institution in this country, huge foreign banks, multi-national corporations, and some of the wealthiest people in the world. Meanwhile 43 million Americans live in poverty and millions have lost their homes through foreclosure. Countries with less income inequality than the US include Cambodia, Vietnam and Morocco.

Is it any wonder then that the Occupy Wall Street protesters are proclaiming "We are the 99%." The 99% who are being left in the dust with no jobs, huge student loans, homes that are underwater or have been foreclosed on. No bailouts here. Thanks to Republican legislation, the terms of student loans are draconian. Unlike credit card loans student loans cannot be discharged in bankruptcy. They will follow you to the grave. And defaults due to lack of jobs can triple the amount owed. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law by President Bush and made possible by Republicans in Congress. It was designed to make it impossible to discharge student loans in bankruptcy and opened the way for a lucrative private loan industry to flourish. David Cay Johnston in his book Free Lunch says, "The idea that young minds should be a source of immediate profit is among the most coldly calculated changes in government which, over the past three decades, have taken from the many to enrich the few." Legislation to restore bankruptcy protection to student loans has been reintroduced in Congress by Democrats. Fat chance it will pass though with Republicans controlling the House and having the filibuster rule in the Senate.

People are facing retirement with no pensions, their 401ks having lost value or having been spent before retirement just to keep financially afloat. The 99 per centers include students, recently graduated students with huge student loans and no jobs, middle aged unemployed folks who are not being rehired, African Americans whose unemployment rates are sky high, people who have lost their homes to foreclosure - all those people who were not bailed out while the banks who were bailed out profit at their expense. The Obama administration failed to put sanctions on the banks allowing them to continue to profit with no accountability. No banksters went to jail. They made mortgage write downs voluntary on the part of the banks and so far banks have refused to volunteer. The cards have been stacked on the side of the banks and against the middle class. Is it any wonder then that people are occupying Wall Street whose CEOs make on average 300 times the salaries of average workers?

Johnston details a part of the process of how advanced US capitalism with government support centralizes and concentrates capital, ownership wealth and income in the hands of a few. He details how Mom and Pop stores are put out of commission by large mega stores which, with government help, take over retail trade while forcing former Moms and Pops to become employees rather than owners and concentrating wealth. He tells about Jim Weaknecht who had a little sporting goods store in Hamburg, Pennsylvania. In 2003 a sporting goods super store, Cabela's, opened a few miles away. But far from being an exercise in free market capitalism, Cabela's demanded $32 million in government subsidies or else they would take their six acre store elsewhere. Cabela's wanted exemption from paying local property taxes for years to come and tax-exempt status for the "museum" part of the store in perpetuity. In addition they wanted to pocket the sales tax. The store was 100 times bigger than Weaknecht's and stocked more guns and reels and hunting jackets than Weaknecht could sell in a lifetime. Their pitch was that people would come from miles away just to shop there bringing tourist dollars to Hamburg's restaurants and hotels. Shortly after Cabela's opened, Weaknecht's sales fell more than 70%. In less than two years he was out of business. Now Weaknecht works as an assistant manager at a grocery store chain and holds down a second job too. His wife, who previously devoted full time to their children, now also works two jobs. This is how, with government help, wealth and income along with political power is concentrated in the hands of a few. Cabela's has also opened numerous other super stores across the nation putting Mom and Pop operations out of business nationwide.

Johnson details how Wal-Mart pioneered the super store approach. "In seeking these subsidies, Cabela's was not inventing a new scheme. It was simply improving on a technique pioneered by an icon of retailing success, Sam Walton. The Walton story was not about the brave capitalist taking on risk and proving his mettle by being smarter than the other guy, no matter how carefully the Wal-Mart company has polished and sold that fairy tale. Sam Walton practiced corporate socialism. As much as he could, he put the public's money to work for his benefit. Free land, long-term leases at below-market rates, pocketing sales tax, even getting workers trained at government expense were among the ways Wal-Mart took every dollar of welfare it could get."

Fifty years ago, people shopped at a number of Mom and Pop stores rather than at one super store. For instance, there were paint stores, lumber stores, hardware stores, electrical supply stores all under different ownership and all under different ownership in different towns and cities. Now in one trip to Home Depot, you can buy all these items in one centralized location with the result that the smaller Mom and Pop stores have been put out of business and wealth has been centralized and concentrated. There are Home Depots in practically every large and middle sized town and city in America. The same holds true for large super market chains. Previously, shoppers went to a meat market for meat, a dairy for dairy items, a bakery for baked goods etc. Now one trip to a super market does it all and wealth has been centralized and concentrated in the hands of a few while the remaining population have become employees with no accumulation of wealth except for their houses which have drastically decreased in value in recent years.

The US has concentrated private wealth in the hands of the 1% while at the same time creating a concentration of debt in the government. Government debt has fueled private wealth as the government has been used just as a tool for benefitting private capitalists. The privatization of government functions has increased government debt while increasing private wealth. China, on the other hand, has a wealthy class including billionaires, less inequality than the US and a concentration of wealth in the hands of government. So wealth is dispersed at least between public and private entities and to a larger extent even among the public than in the US. China's sovereign wealth fund holds approximately $2 trillion of US debt. So while the US is a wealthy nation in terms of its cumulative wealth, that wealth is mostly in private hands and in the hands of the upper 1%. The US government itself is next to bankrupt. The US represents private wealth amid public squalor. 46 million people live below the poverty line as of 2011. Minorities are hit hardest. Blacks experience the highest poverty rate, at 27 percent, up from 25 percent in 2009, and Hispanics rose to 26 percent from 25 percent. For whites, 9.9 percent live in poverty, up from 9.4 percent in 2009. Asians were unchanged at 12.1 percent. The number without health insurance is on the rise. 43 million use food stamps to survive.

Marx foresaw that capitalism would lead to the concentration and centralization of wealth ownership in fewer and fewer hands. It is easy to see why. To recapitulate, mergers and acquisitions lead to larger and larger enterprises forcing smaller firms out of business. Franchise operations lead to replicating the same stores in every community with profits flowing to one centralized location. Think of MacDonald's, Wal-Mart, Home Depot and Starbucks which force less well capitalized Mom and Pop stores out of business. Loans and money from investors in equity shares is available to large scale enterprises but not to small Mom and Pop stores. The corporate form dictates that companies pursue the bottom line over all other possible goals. Owners of small scale enterprises are reduced to employees living paycheck to paycheck rather than owning capital which would tide them over economic downturns. So even though the corporate form was relatively new in Marx' day, he was remarkably prescient in showing how the dynamics of capitalism would centralize and concentrate wealth in fewer and fewer hands. That dynamic, along with the addition of political power to use government as a tool for the further accumulation of wealth which Marx did not foresee, is playing out today as Republicans go on the warpath against unions and government employees which will result in an even larger return to the owners of wealth while wages and benefits to workers remain stagnant or even decrease. The addition of computers and automated machinery means that workers will become increasingly irrelevant as they are replaced by capital equipment.

September 27, 2011

The West and the Rest in a One-Model-Fits-All World

More than 10 years ago, before 9/11, Goldman Sachs was predicting that the BRIC countries (Brazil, Russia, India, China) would make the world economy’s top ten -- but not until 2040. Skip a decade and the Chinese economy already has the number two spot all to itself, Brazil is number seven, India 10, and even Russia is creeping closer. In purchasing power parity, or PPP, things look even better. There, China is in second place, India is now fourth, Russia sixth, and Brazil seventh.

No wonder Jim O’Neill, who coined the neologism BRIC and is now chairman of Goldman Sachs Asset Management, has been stressing that “the world is no longer dependent on the leadership of the U.S. and Europe.” After all, since 2007, China’s economy has grown by 45%, the American economy by less than 1% -- figures startling enough to make anyone take back their predictions. American anxiety and puzzlement reached new heights when the latest International Monetary Fund projections indicated that, at least by certain measurements, the Chinese economy would overtake the U.S. by 2016. (Until recently, Goldman Sachs was pointing towards 2050 for that first-place exchange.)

Within the next 30 years, the top five will, according to Goldman Sachs, likely be China, the U.S., India, Brazil, and Mexico. Western Europe? Bye-bye!

A System Stripped to Its Essence

Increasing numbers of experts agree that Asia is now leading the way for the world, even as it lays bare glaring gaps in the West’s narrative of civilization. Yet to talk about “the decline of the West” is a dangerous proposition. A key historical reference is Oswald Spengler’s 1918 essay with that title. Spengler, a man of his times, thought that humanity functioned through unique cultural systems, and that Western ideas would not be pertinent for, or transferable to, other regions of the planet. (Tell that howler to the young Egyptians in Tahrir Square.)

Spengler, of course, captured the Western-dominated zeitgeist of another century. He saw cultures as living and dying organisms, each with a unique soul. The East or Orient was “magical,” while the West was “Faustian.” A reactionary misanthrope, he was convinced that the West had already reached the supreme status available to a democratic civilization -- and so was destined to experience the “decline” of his title.

If you’re thinking that this sounds like an avant-la-lettre Huntingtonesque “clash of civilizations,” you can be excused, because that’s exactly what it was.

Speaking of civilizational clashes, did anyone notice that “maybe” in a recent TIMEcover story picking up on Spenglerian themes and headlined “The Decline and Fall of Europe (and Maybe the West)”? In our post-Spenglerian moment, the “West” is surely the United States, and how could that magazine get it so wrong? Maybe? After all, a Europe now in deep financial crisis will be “in decline” as long as it remains inextricably intertwined with and continues to defer to “the West” -- that is, Washington -- even as it witnesses the simultaneous economic ascent of what’s sometimes derisively referred to as “the South.”

Think of the present global capitalist moment not as a "clash," but a “cash of civilizations.”

If Washington is now stunned and operating on autopilot, that’s in part because, historically speaking, its moment as the globe’s “sole superpower” or even “hyperpower” barely outlasted Andy Warhol’s notorious 15 minutes of fame -- from the fall of the Berlin Wall and collapse of the Soviet Union to 9/11 and the Bush doctrine. The new American century was swiftly throttled in three hubris-filled stages: 9/11 (blowback); the invasion of Iraq (preemptive war); and the 2008 Wall Street meltdown (casino capitalism).

Meanwhile, one may argue that Europe still has its non-Western opportunities, that, in fact, the periphery increasingly dreams with European -- not American -- subtitles. The Arab Spring, for instance, was focused on European-style parliamentary democracies, not an American presidential system. In addition, however financially anxious it may be, Europe remains the world’s largest market. In an array of technological fields, it now rivals or outpaces the U.S., while regressive Persian Gulf monarchies splurge on euros (and prime real estate in Paris and London) to diversify their portfolios.

Yet, with “leaders” like the neo-Napoleonic Nicolas Sarkozy, David (of Arabia) Cameron, Silvio (“bunga bunga”) Berlusconi, and Angela (“Dear Prudence”) Merkel largely lacking imagination or striking competence, Europe certainly doesn’t need enemies. Decline or not, it might find a whole new lease on life by sidelining its Atlanticism and boldly betting on its Euro-Asian destiny. It could open up its societies, economies, and cultures to China, India, and Russia, while pushing southern Europe to connect far more deeply with a rising Turkey, the rest of the Middle East, Latin America, and Africa (and not via further NATO “humanitarian” bombings either).

Otherwise, the facts on the ground spell out something that goes well beyond the decline of the West: it’s the decline of a system in the West that, in these last years, is being stripped to its grim essence. Historian Eric Hobsbawm caught the mood of the moment when he wrote in his book How to Change the World that “the world transformed by capitalism,” which Karl Marx described in 1848 “in passages of dark, laconic eloquence is recognisably the world of the early twenty-first century.”

In a landscape in which politics is being reduced to a (broken) mirror reflecting finance, and in which producing and saving have been superseded by consuming, something systemic comes into view. As in the famous line of poet William Butler Yeats, “the center cannot hold” -- and it won’t either.

If the West ceases to be the center, what exactly went wrong?

Are You With Me or Against Me?

It’s worth remembering that capitalism was “civilized” thanks to the unrelenting pressure of gritty working-class movements and the ever-present threat of strikes and even revolutions. The existence of the Soviet bloc, an alternate model of economic development (however warped), also helped. To counteract the USSR, Washington’s and Europe’s ruling groups had to buy the support of their masses in defending what no one blushed about calling “the Western way of life.” A complex social contract was forged, and it involved capital making concessions.

No more. Not in Washington, that’s obvious. And increasingly, not in Europe either. That system started breaking down as soon as -- talk about total ideological triumph! -- neoliberalism became the only show in town. There was a single superhighway from there and it swept the most fragile strands of the middle class directly into a new post-industrial proletariat, or simply into unemployable status.

If neoliberalism is the victor for now, it’s because no realist, alternative developmental model exists, and yet what it has won is ever more in question. Meanwhile, except in the Middle East, progressives the world over are paralyzed, as if expecting the old order to dissolve by itself. Unfortunately, history teaches us that, at similar crossroads in the past, you are as likely to find the grapes of wrath, right-wing populist-style, as anything else -- or worse yet, outright fascism.

“The West against the rest” is a simplistic formula that doesn’t begin to describe such a world. Imagine instead, a planet in which “the rest” are trying to step beyond the West in a variety of ways, but also have absorbed that West in ways too deep to describe. Here’s the irony, then: Yes, the West will “decline,” Washington included, and still it will leave itself behind everywhere.

Sorry, Your Model Sucks

Suppose you’re a developing country, shopping in the developmental supermarket. You look at China and think you see something new -- a consensus model that’s turning on the lights everywhere -- or do you? After all, the Chinese version of an economic boom with no political freedom may not turn out to be much of a model for other countries to follow. In many ways, it may be more like an inapplicable lethal artifact, a cluster bomb made up of shards of the Western concept of modernity married to a Leninist-based formula where a single party controls personnel, propaganda, and -- crucially -- the People’s Liberation Army.

At the same time, this is a system evidently trying to prove that, even though the West unified the world -- from neocolonialism to globalization -- that shouldn’t imply it’s bound to rule forever in material or intellectual terms.

For its part, Europe is hawking a model of supra-national integration as a means of solving problems and conflicts from the Middle East to Africa. But any shopper can now see evidence of a European Union on the verge of cracking amid non-stop inter-European bickering that includes national revolts against the euro, discontent over NATO’s role as a global Robocop, and a style of ongoing European cultural arrogance that makes it incapable of recognizing, to take one example, why the Chinese model is so successful in Africa.

Or let’s say our shopper looks to the United States, that country still being, after all, the world’s number one economy, its dollar still the world’s reserve currency, and its military still number one in destructive power and still garrisoning much of the globe. That would indeed seem impressive, if it weren’t for the fact that Washington is visibly on the decline, oscillating wildly between a lame populism and a stale orthodoxy, and shilling for casino capitalism on a side street in its spare time. It’s a giant power enveloped in political and economic paralysis for all the world to see, and no less visibly incapable of coming up with an exit strategy.

Really, would you buy a model from any of them? In fact, where in a world in escalating disarray is anyone supposed to look these days when it comes to models?

One of the key reasons for the Arab Spring was out-of-control food prices, driven significantly by speculation. Protests and riots in Greece, Italy, Spain, France, Germany, Austria, and Turkey were direct consequences of the global recession. In Spain, nearly half of 16- to 29-year-olds -- an overeducated “lost generation” -- are now out of jobs, a European record.

That may be the worst in Europe, but in Britain, 20% of 16- to 24-year-olds are unemployed, about average for the rest of the European Union. In London, almost 25% of working-age people are unemployed. In France, 13.5% of the population is now officially poor -- that is, living on less than $1,300 a month.

As many across Western Europe see it, the state has already breached the social contract. The indignados of Madrid have caught the spirit of the moment perfectly: “We’re not against the system, it’s the system that is against us."

This spells out the essence of the abject failure of neoliberal capitalism, as David Harvey explained in his latest book, The Enigma of Capital. He makes clear how a political economy “of mass dispossession, of predatory practices to the point of daylight robbery, particularly of the poor and the vulnerable, the unsophisticated and the legally unprotected, has become the order of the day.”

Will Asia Save Global Capitalism?

Meanwhile Beijing is too busy remixing its destiny as the global Middle Kingdom -- deploying engineers, architects, and infrastructure workers of the non-bombing variety from Canada to Brazil, Cuba to Angola -- to be much distracted by the Atlanticist travails in MENA (aka the region that includes the Middle East and Northern Africa).

If the West is in trouble, global capitalism is being given a reprieve -- how brief we don’t know -- by the emergence of an Asian middle class, not only in China and India, but also in Indonesia (240 million people in boom mode) and Vietnam (85 million). I never cease to marvel when I compare the instant wonders and real-estate bubble of the present moment in Asia to my first experiences living there in 1994, when such countries were still in the “Asian tiger,” pre-1997-financial-crisis years.

In China alone 300 million people -- “only” 23% of the total population -- now live in medium-sized to major urban areas and enjoy what’s always called “disposable incomes.” They, in fact, constitute something like a nation unto themselves, an economy already two-thirds that of Germany’s.

The McKinsey Global Institute notes that the Chinese middle class now comprises 29% of the Middle Kingdom’s 190 million households, and will reach a staggering 75% of 372 million households by 2025 (if, of course, China’s capitalist experiment hasn’t gone off some cliff by then and its potential real-estate/finance bubble hasn’t popped and drowned the society).

In India, with its population of 1.2 billion, there are already, according to McKinsey, 15 million households with an annual income of up to $10,000; in five years, a projected 40 million households, or 200 million people, will be in that income range. And in India in 2011, as in China in 2001, the only way is up (again as long as that reprieve lasts).

Americans may find it surreal (or start packing their expat bags), but an annual income of less than $10,000 means a comfortable life in China or Indonesia, while in the United States, with a median household income of roughly $50,000, one is practically poor.

Nomura Securities predicts that in a mere three years, retail sales in China will overtake the U.S. and that, in this way, the Asian middle class may indeed “save” global capitalism for a time -- but at a price so steep that Mother Nature is plotting some seriously catastrophic revenge in the form of what used to be called climate change and is now more vividly known simply as “weird weather.”

Back in the USA

Meanwhile, in the United States, Nobel Peace Prize laureate President Barack Obama continues to insist that we all live on an American planet, exceptionally so. If that line still resonates at home, though, it’s an ever harder sell in a world in which the first Chinese stealth fighter jet goes for a test spin while the American Secretary of Defense is visiting China. Or when the news agency Xinhua, echoing its master Beijing, fumes against the “irresponsible” Washington politicians who starred in the recent debt-ceiling circus, and points to the fragility of a system “saved “ from free fall by the Fed’s promise to shower free money on banks for at least two years.

Nor is Washington being exactly clever in confronting the leadership of its largest creditor, which holds $3.2 trillion in U.S. currency reserves, 40% of the global total, and is always puzzled by the continued lethal export of “democracy for dummies” from American shores to the Af-Pak war zones, Iraq, Libya, and other hot spots in the Greater Middle East. Beijing knows well that any further U.S.-generated turbulence in global capitalism could slash its exports, collapse its property bubble, and throw the Chinese working classes into a pretty hardcore revolutionary mode.

This means -- despite rising voices of the Rick Perry/Michele Bachmann variety in the U.S. -- that there’s no “evil” Chinese conspiracy against Washington or the West. In fact, behind China’s leap beyond Germany as the world’s top exporter and its designation as the factory of the world lies a significant amount of production that’s actually controlled by American, European, and Japanese companies. Again, the decline of the West, yes -- but the West is already so deep in China that it’s not going away any time soon. Whoever rises or falls, there remains, as of this moment, only a one-stop-shopping developmental system in the world, fraying in the Atlantic, booming in the Pacific.

If any Washington hopes about “changing” China are a mirage, when it comes to capitalism’s global monopoly, who knows what reality may turn out to be?

Wasteland Redux

The proverbial bogeymen of our world -- Osama, Saddam, Gaddafi, Ahmadinejad (how curious, all Muslims!) -- are clearly meant to act like so many mini-black holes absorbing all our fears. But they won’t save the West from its decline, or the former sole superpower from its comeuppance.

Yale’s Paul Kennedy, that historian of decline, would undoubtedly remind us that history will sweep away American hegemony as surely as autumn replaces summer (as surely as European colonialism was swept away, NATO’s “humanitarian” wars notwithstanding). Already in 2002, in the run-up to the invasion of Iraq, world-system expert Immanuel Wallerstein was framing the debate this way in his book The Decline of American Power: the question wasn’t whether the United States was in decline, but if it could find a way to fall gracefully, without too much damage to itself or the world. The answer in the years since has been clear enough: no.

Who can doubt that, 10 years after the 9/11 attacks, the great global story of 2011 has been the Arab Spring, itself certainly a subplot in the decline of the West? As the West wallowed in a mire of fear, Islamophobia, financial and economic crisis, and even, in Britain, riots and looting, from Northern Africa to the Middle East, people risked their lives to have a crack at Western democracy.

Of course, that dream has been at least partially derailed, thanks to the medieval House of Saud and its Persian Gulf minions barging in with a ruthless strategy of counter-revolution, while NATO lent a helping hand by changing the narrative to a “humanitarian” bombing campaign meant to reassert Western greatness. As NATO’s secretary-general Anders Fogh Rasmussen put the matter bluntly, “If you’re not able to deploy troops beyond your borders, then you can’t exert influence internationally, and then that gap will be filled by emerging powers that don’t necessarily share your values and thinking.”

So let’s break the situation down as 2011 heads for winter. As far as MENA is concerned, NATO’s business is to keep the U.S. and Europe in the game, the BRICS members out of it, and the “natives” in their places. Meanwhile, in the Atlantic world, the middle classes barely hang on in quiet desperation, even as, in the Pacific, China booms, and globally the whole world holds its breath for the next economic shoe to drop in the West (and then the one after that).

Pity there’s no neo-T.S. Eliot to chronicle this shabby, neo-medievalist wasteland taking over the Atlanticist axis. When capitalism hits the intensive care unit, the ones who pay the hospital bill are always the most vulnerable -- and the bill is invariably paid in blood.

In the rhetoric wars, President Obama has finally thrown down the gauntlet to the Republicans. In response to their accusations of class warfare, Obama has effectively said, Damn right it's class warfare, and I'm on the side of the middle class. He's starting to call out Republicans by name. A while back he never could bring himself to even mention the word - Republican. He would say something like "our friends in Congress." Congress is not homogeneous. Not all Congressmen and women have the same values. It's time to call out "Republicans in Congress" as the real bastards. For the most part Democrats in Congress want to do the right thing and get the country moving again. That's why all these polls that give "Congress" an approval rating of 12% are ridiculous. It's not a "one size fits all" Congress. There are good guys in Congress, and then there are Republicans whose job seems to be to shoot down any initiative that might have a chance of improving the economy. Pollsters take note.

Obama's big mistake was listening to Larry Summers and other Wall Street types in the first place. The whole prognosis was to bend over backwards to help Wall Street on the assumption that getting Wall Street to loan money was all that was necessary to get the economy rolling again. Things would automatically get better once Wall Street returned to profitability. WRONG!! Obama should have been on the side of the middle class from the get-go. He should have challenged their rhetoric in the first place. When they called the rich "job creators" he should have pointed out how many AMERICAN jobs they destroyed by moving them overseas. Finally, he has lit a lightbulb in the minds of the American people that all tax breaks are not the same. There's tax breaks for the rich and then there's tax breaks for the middle class. You can do one without doing the other. Duhhh!

This notion that all you have to do is give more tax breaks to the rich in order to get them to use the $2 trillion they're sitting on to go out and hire more people is patently ridiculous. They will never hire more people unless it's in their interests and the interests of their bottom line to hire more people. They're not going to hire more people because the government gives them a financial incentive to hire more people. Labor is one of their biggest expenses, and they're not nice guys who will give someone, whom they don't need, a paycheck. When will people wake up and realize that a lot of people are never going to be hired by private corporations because they just don't need them. Machines are replacing people at a faster and faster rate. That makes labor "redundant" so to speak. Automation, robotization and computerization are proceeding at a rapid pace. Productivity is going up while the need for labor goes down. Capital improvements not human labor are providing the productivity gains. That is the story since the computer revolution of the 1990s. This might be a good thing if ownership of the means of production were spread more widely. Then everyone could have more leisure time and an adequate income with which to enjoy their leisure time. The work week could be cut to 20 hours. Instead ownership and hence prodfits are concentrated among a very small portion of the population who are doing quite well, thank you, while the vast majority of American citizens are experiencing falling wages or are being bumped out of the middle class and into poverty.

Obama needs to channel his inner FDR. FDR didn't see the solution to the Great Depression as catering to Wall Street. No, in fact he railed against the "economic royalists." He saw the solution as the direct creation of jobs BY THE GOVERNMENT! The WPA and the CCC were up and running in no time and provided much needed income to the middle class. The people who were employed in those programs built most of the American infrastructure that is crumbling and in need of replacement today. Obama needs to find the money - albeit without the help of the REPUBLICAN Congress which will begrudge him even one penny - somewhere to fund a jobs program. A fully funded Americorps would do the job. He needs to make Americorps, not the military, the employer of last resort.

America is shooting itself in the foot by having its REPUBLICAN politicians always threatening to shut down the government and by not using government effectively to build infrastructure and provide jobs. Meanwhile, the rest of the world is not standing still. Despite Dick Cheney's attempt to leverage the Iraq War into a boon for US oil companies, who did the first oil contract go to? China. China has been quietly buying up the world's natural resources without having fired a shot or spent any money on war. The US, on the other hand, has effectively bankrupted itself fighting futile wars promoted largely by the military-industrial complex which has made billions by promoting war. Lockheed Martin lobbyists swarm over Washington buying off Congressmen to vote for worthless projects like the F-22 and racking up huge cost overruns. It's an overextended empire comprising over 1000 military bases in every corner of the globe. Now Leon Panetta is saying that cutting the military budget would add 1% to the unemployment rate. Sure because the military is the US' employment program of last resort. But most of the money doesn't go to the rank and file. It goes to defense contractors who siphon off enormous profits. So for a fraction of what we spend on the military, those unemployed by a cut in the defense budget could be reemployed in civilian pursuits such as rebuilding infrastructure and in such a way that the lion's share of the expenditures go directly to workers and not to corporate profits.

The rest of the world is passing us by. While America's infrastructure decays, China is building high speed rail. The four largest Chinese banks are state owned while Wall Street and European banks continue to teeter on the edge of a meltdown. Has western capitalism reached its limits? Is state ownership of the large banks the way to go? Wall Street lobbyists continue to demand less regulation which is what got them into trouble in the first place while Chinese banks at the highest level have to answer to their government. It doesn't seem to augur a diminution of wealth creation because now western countries are going to China to help bail them out. The Chinese government, instead of being deeply in debt like most western countries, is sitting on $2 trillion in a sovereign wealth fund. The Chinese people aren't doing too badly either. In the US and Europe wealth is being created primarily for the upper 2%. China seems to be enjoying widespread wealth creation as Chinese tourists and students travel to the far corners of the world for pleasure or edification.

In short it will take more than rhetoric for America to not become the world's backwater. It will take more than rhetoric for America not to become a nation of consumers without production, a nation of debtors without jobs, a nation of chumps at the mercy of TV advertisers. Maybe the occupation of Wall Street is the first step of a major revision of the American Dream.

Can China save the world economy? That is a question that people should be asking as the other potential candidates withdraw from the race. At the moment, the economies of the United States, Europe and Japan are all suffering from weak growth or worse. The debt crisis of eurozone countries threatens another financial crisis that could lead to another plunge in output, not just in Europe but throughout the world.

Meanwhile, the actors who could, in principle, take steps to reverse this dismal course of events are largely paralyzed. The eurozone countries are struggling with efforts to form the necessary fiscal union to support their currency. This requires creating a new legal structure, while also confronting intense political opposition in Germany and other better-off countries that will be asked support the debt of the Greece and other struggling economies.

Meanwhile, the European Central Bank (ECB) is finding it difficult to break with its cult of 2.0% inflation targeting – even after the economic disaster caused by this single-minded policy focus. It actually raised its overnight rate by 0.5 percentage points in the spring, slowing growth and increasing the cost of borrowing for debt-burdened governments.

The United States does not face the same imminent crisis, but it is likely to see slow growth and rising unemployment as both fiscal and monetary policy are largely checkmated by politics. Furthermore, a eurozone financial freeze-up will almost certainly lead to a double-dip recession in the US, as well.

And Japan has just seen another prime minister sent packing after failing to deal effectively with the aftermath of the earthquake and tsunami. The country now has its fourth prime minister in four years.

With the key actors in the wealthy countries either unwilling or unable to take the necessary steps to support the world economy, it is reasonable to ask whether China can fill the gap. Certainly, China has the ability to act as a backstop for the world economy, if it chooses to play this role.

On a purchasing power parity basis, China's economy is already more than 75% as large as the US economy. It is projected exceed the size of the US economy by 2016. China also has a vast amount of reserves, holding almost $1.2tn in US dollar assets, and has close to $2tn in total reserves.

It would need only a small fraction of this wealth to have an enormous impact on the sovereign debt crisis in Europe. In the case of Greece, it would need to set some floor on the value of Greek debt as an orderly restructuring is arranged. Greece has roughly $450bn in debt outstanding. Much of this debt has already been partially written down by its holders. Certainly, $100bn in debt purchases would be more than sufficient to arrange an orderly write-down and restructuring of Greece's debt to a sustainable level.

The other troubled countries actually suffer primarily from a crisis of confidence more than a serious debt problem. For example, Spain has a debt to GDP ratio that is just over 60%, well within anyone's conception of manageable. Italy has a more troubling debt to GDP ratio of 120%, but has a near-balanced budget. In both cases, if interest rates could be kept at reasonable levels, the debt burden could be easily met.

Interest rates on both countries' bonds have soared in recent months as the ECB has demanded harsh austerity measures at a time when the downturn has sent budget deficits soaring. The austerity measures threaten a downward spiral where weak growth leads to rising deficits, which, in turn, require further austerity measures. With the ECB determined to tell investors that sovereign debt can default, they have created a perfect recipe for a self-imposed disaster.

China can reverse this picture by providing guarantees to support the bonds of these governments. By setting a floor on the price of their bonds (or a cap on interest rates), it can ensure that they can borrow at interest rates that make their debt sustainable. In addition, by easing up on the austerity measures demanded by the ECB (actually, the IMF and European Union are also actors in this story), China's intervention can help these countries to return to normal levels of growth, reducing the burden of the debt in the future. It is likely that such guarantees would never cost China anything, since the debt-burdened European governments would have little problem meeting their debt service obligations once they return to healthy growth path.

This sort of intervention by China would not require altruism. Europe is a substantial market for China's exports, as is the United States. If the eurozone collapses, the resulting financial crisis and economic fallout will send China's exports plummeting, just as happened in the fall of 2008.

China already intervenes to support its exports – that is why it holds almost $1.1tn in US government debt – so this idea of intervening to sustain export markets is not new to the Chinese government. The only thing that would be new would be the form of the intervention.

If China were to take this path, it would provide enormous benefits to the world economy. The wealthy countries would have to acknowledge China's role as the leading economic force in the world. They would also have to acknowledge the errors of their boneheaded economic leadership that put them in a situation where they could not rescue their own economies.

June 30, 2011

At a sprawling manufacturing complex here, hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge.

Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge.

The project is part of China’s continual move up the global economic value chain — from cheap toys to Apple iPads to commercial jetliners — as it aims to become the world’s civil engineer.

The assembly work in California, and the pouring of the concrete road surface, will be done by Americans. But construction of the bridge decks and the materials that went into them are a Made in China affair. California officials say the state saved hundreds of millions of dollars by turning to China.

“They’ve produced a pretty impressive bridge for us,” Tony Anziano, a program manager at the California Department of Transportation, said a few weeks ago. He was touring the 1.2-square-mile manufacturing site that the Chinese company created to do the bridge work. “Four years ago, there were just steel plates here and lots of orange groves.”

On the reputation of showcase projects like Beijing’s Olympic-size airport terminal and the mammoth hydroelectric Three Gorges Dam, Chinese companies have been hired to build copper mines in the Congo, high-speed rail lines in Brazil and huge apartment complexes in Saudi Arabia.

In New York City alone, Chinese companies have won contracts to help renovate the subway system, refurbish the Alexander Hamilton Bridge over the Harlem River and build a new Metro-North train platform near Yankee Stadium. As with the Bay Bridge, American union labor would carry out most of the work done on United States soil.

American steelworker unions have disparaged the Bay Bridge contract by accusing the state of California of sending good jobs overseas and settling for what they deride as poor-quality Chinese steel. Industry groups in the United States and other countries have raised questions about the safety and quality of Chinese workmanship on such projects. Indeed, China has had quality control problems ranging from tainted milk to poorly built schools.

But executives and officials who have awarded the various Chinese contracts say their audits have convinced them of the projects’ engineering integrity. And they note that with the full financial force of the Chinese government behind its infrastructure companies, the monumental scale of the work, and the prices bid, are hard for private industry elsewhere to beat.

The new Bay Bridge, expected to open to traffic in 2013, will replace a structure that has never been quite the same since the 1989 Bay Area earthquake. At $7.2 billion, it will be one of the most expensive structures ever built. But California officials estimate that they will save at least $400 million by having so much of the work done in China. (California issued bonds to finance the project, and will look to recoup the cost through tolls.)

California authorities say they had little choice but to rebuild major sections of the bridge, despite repairs made after the earthquake caused a section of the eastern span to collapse onto the lower deck. Seismic safety testing persuaded the state that much of the bridge needed to be overhauled and made more quake-resistant.

Eventually, the California Department of Transportation decided to revamp the western span of the bridge (which connects San Francisco to Yerba Buena Island) and replace the 2.2-mile eastern span (which links Yerba Buena to Oakland).

On the eastern span, officials decided to build a suspension bridge with a complex design. The span will have a single, 525-foot tower, anchored to bedrock and supported by a single, enormous steel-wire cable that threads through the suspension bridge.

“We wanted something strong and secure, but we also wanted something iconic,” said Bart Ney, a transportation department spokesman.

A joint venture between two American companies, American Bridge and Fluor Enterprises, won the prime contract for the project in early 2006. Their bid specified getting much of the fabricated steel from overseas, to save money.

California decided not to apply for federal funding for the project because the “Buy America” provisos would probably have required purchasing more expensive steel and fabrication from United States manufacturers.

China, the world’s biggest steel maker, was the front-runner, particularly because it has dominated bridge building for the last decade. Several years ago, Shanghai opened a 20-mile sea bridge; the country is now planning a much longer one near Hong Kong.

The selection of the state-owned Shanghai Zhenhua Heavy Industries Company was a surprise, though, because the company made port cranes and had no bridge building experience.

But California officials and executives at American Bridge said Zhenhua’s advantages included its huge steel fabrication facilities, its large low-cost work force and its solid finances. (The company even had its own port and ships.)

“I don’t think the U.S. fabrication industry could put a project like this together,” Brian A. Petersen, project director for the American Bridge/Fluor Enterprises joint venture, said in a telephone interview. “Most U.S. companies don’t have these types of warehouses, equipment or the cash flow. The Chinese load the ships, and it’s their ships that deliver to our piers.”

Despite the American union complaints, former California Gov. Arnold Schwarzenegger, a Republican, strongly backed the project and even visited Zhenhua’s plant last September, praising “the workers that are building our Bay Bridge.”

Zhenhua put 3,000 employees to work on the project: steel-cutters, welders, polishers and engineers. The company built the main bridge tower, which was shipped in mid-2009, and a total of 28 bridge decks — the massive triangular steel structures that will serve as the roadway platform.

Pan Zhongwang, a 55-year-old steel polisher, is a typical Zhenhua worker. He arrives at 7 a.m. and leaves at 11 p.m., often working seven days a week. He lives in a company dorm and earns about $12 a day.

“It used to be $9 a day, now it’s $12,” he said Wednesday morning, while polishing one of the decks for the new Bay Bridge. “Everything is getting more expensive. They should raise our pay.”

To ensure the bridge meets safety standards, 250 employees and consultants working for the state of California and American Bridge/Fluor also took up residence in Shanghai.

Asked about reports that some American labor groups had blocked bridge shipments from arriving in Oakland, Mr. Anziano dismissed those as confused.

“That was not about China,” he said. “It was a disagreement between unions about which had jurisdiction and who had the right to unload a shipment. That was resolved.”

May 21, 2011

We hear all this blather about how the US is such a wealthy nation. Not true. Before Ronald Reagan became President, the US was the world's largest creditor nation. People and countries owed us more money than we owed them. Now some 30 years later the US is the world's largest debtor nation. This is the definition of a poor - not a rich - nation. China on the other hand holds $3 trillion in international reserves including $1 trillion of US debt. Other nations have sovereign wealth funds which contain vast amounts of money. The US has only a huge pile of debt - some $14 trillion worth. The US used to be the world's largest importer of raw materials and exporter of manufactured goods. Now we're the world's largest exporter of raw materials and importer of manufactured goods with a trade deficit of some $600 billion a year. At the present time the US has a deficit of some $2 trillion in needed infrastructure repairs while China is building high speed rail track at such a rate that it will soon have more miles than the rest of the world combined. Meanwhile, the US spends more on its military establishment than the rest of the world combined while cutting safety nets and education for its own citizens.

Americans have pulled the wool over their own eyes. Despite having a national debt of $14 trillion, despite having gone from a net creditor nation to a net debtor nation in little over 30 years, despite having enormous trade deficits month after month, year after year, despite having an infrastructure in need of $2 trillion worth of repairs, Americans think they live in a wealthy nation. The truth of the matter is that the US is a poor nation within which live a lot of wealthy individuals. China on the other hand holds a little over $1 trillion of US debt making it a fairly wealthy nation albeit with a large but diminishing number of poor people. China is building new infrastructure at an astonishing rate. It's a fallacy to think a wealthy nation is a nation comprised of a large number of wealthy individuals. In fact many Banana Republics are comprised of a small class of wealthy individuals surrounded by a sea of poverty. The US is on track to becoming one of those. A recent survey showed that there is a higher level of inequality in the US than exists in Pakistan, Ethiopia and Ivory Coast.

It is not hard to diagnose why the US is a poor nation which thinks itself rich while China is a rich nation which passes itself off as being poor. All the free trade agreements like NAFTA and CAFTA have resulted in the decimation of the US manufacturing base. US factories are closing in droves:

2010 comes in the midst of a stunning wave of U.S. factory closings that stretches from coast to coast. Once upon a time America was the greatest manufacturing machine that the world has ever seen, but now it seems as though the only jobs available for working class Americans involve phrases such as “Welcome to Wal-Mart” and “Would you like fries with that?” Even though the population of the United States has exploded over the last several decades, the number of Americans employed in the manufacturing sector today is smaller than it was in 1950. America has become a voracious economic black hole that ”consumes” as much as possible and yet actually produces very little. The United States is becoming deindustrialized at a blinding pace, and it is becoming increasingly difficult for blue collar American workers to find jobs that will actually enable them to support their families. The sad truth is that American workers don’t have a whole lot to actually celebrate this Labor Day. 14 million U.S. workers are “officially unemployed” and tens of millions of others have been forced to take part-time or temporary jobs that they are overqualified for just so they can survive. Unfortunately, this is not just a temporary situation for American workers. As millions of good jobs continue to get outsourced and offshored, Labor Day celebrations in coming years will be even more depressing.

Since 2001, The U.S. Has Lost 42,400 factories. The "giant sucking sound" that Ross Perot predicted has become a point of actual fact. But this doesn't seem to bother America's leaders. They are dedicated to the policy that US consumption drives US GDP and as long as US GDP is the largest in the world, who cares? Sales are up! However China, as the world's second largest economy as measured by GDP, is on track to overtake the US in the near future. American politicians only care about transnational corporations, nominally American, and how they can maintain the US consumer appetite (and their profit margins) for buying their goods even though most of those goods are produced overseas. They coddle these corporations by lowering their taxes, having their lobbyists drill loophioles in the tax code and giving them a "tax holiday" during which they can "repatriate" their overseas capital and bring it "home" without any tax consequences.

The model of trickle down economics, long since discredited, is still being championed by right wing politicians with the result that the fig leaf of prosperity is being shredded to reveal a naked transfer of wealth from the middle class to the upper one per cent. Naked power grabs are becoming the order of the day as the recent vote to extend taxpayer subsidies to the five Big OIl companies, despite their being the most profitable corporations in human history, reveals. At the same time those same right wing policticians are demanding that the budget be balanced on the backs of the poor and middle class. While countries such as Norway fund their safety net with royalties from oil drilling, the US gives away its natural resources to oil corporations including BP which is not even headquartered in the US. The neocon model of privatization and eliminating safety nets, although unsuccessful in Argentina and Brazil, is achieving considerably more success when practiced here at home. Trade unions are being decimated. States are being turned into fiefdoms and dictatorships. Public education is being defunded. There is an all out assault on teachers, police and other public workers. The notion that government doesn't work and can't be trusted is being fostered.

The US is becoming the very definition of a Banana Republic. It is becoming a nation largely bereft of a middle class, a nation in which there exists a small class of extremely wealthy individuals surrounded by a sea of impoverishment, a nation of antiquated infrastructure, a nation in which there is no there there. All that exists is a diminshing probablity of getting rich or even making it into the middle class. Students are being saddled with immense and obscene amounts of student loan debt. Middle classers are losing their homes to foreclosure. Poor people are being shunted aside as food stamp programs are being shut down and home heating oil allowances are drying up. The war on the poor is raging. And the American people continue to vote the guys that are screwing them into office because they pander to them with promises of unlimited rights of gun ownership and promises that they won't allow gays to marry

The US in point of fact is not a wealthy nation despite attempts to brainwash us that it is, and it's becoming poorer by the hour. But instead of implementing a rational health care system, we continue to give away billions to the pharmaceutical companies that we wouldn't have to if the government weren't prevented by law from negotiating with them. We continue to give away billions in subsidies to Big Oil and Big Agriculture. We continue to give away billions in tax breaks to the rich. We continue to pour billions down ratholes in Afghanistan, Pakistan, Iraq, Israel and many other places. .

These countries are taking us for a ride, and the Israeli President Netanyahu lectures our President on why he won't cooperate to bring about mideast peace. They are manipulating us out of our money while actually working and fighting against us as revealed by Pakistan's harboring of bin Laden. If Obama had tried to coordinate bin Laden's capture with Pakistan instead of going it alone, bin Laden would probably have been tipped off with the result that the Seals, to Obama's embarassment, would not have found bin Laden at home. What, no bin Laden? Just innocent women and children.

As China eats the US' lunch and the rest of the world rips off Uncle Sucker for billions of US taxpayer dollars, the American people should get used to the fact that we're not number 1 any more. Far from being the world's richest nation we're fast becoming one of the world's poorest nations where some of the world's richest people happen to reside. But don't worry about them. They also own villas in France, Italy and Spain. They only continue to hold US citizenship as a convenience. They could live anywhere. They could headquarter their corporations anywhere. It's still convenient for them to headquarter here so they can use their lobbyists to rip off American taxpayers and sell into the American consumer market. But as time goes on most of their sales will be to emerging consumer markets in China and elsewhere.

March 09, 2011

China’s new economic plan is a relic of the past. It focuses on raising standards of living. How quaint!

When China’s leaders unveiled their latest five-year plan recently, they revealed that their focus is on lowering inequality, investing in railroads, highways and hospitals and expanding domestic demand through income subsidies. Fancy that!

Those old world Chinese just don’t seem to get it, that the modern way is the American way: deregulate, concentrate wealth in the top 1 percent and then make sure those at the top don’t pay taxes!

Treated well enough, the rich will fund desperately-needed things like cancer research. Just look at David Koch. Keep government regulators’ hands off his cancer-causing formaldehyde, and he’ll happily put $100 million toward a new Institute for (some) Cancer Research at the Massachusetts Institute of Technology. (As long as it’s named after him. )

It’s the modern new twist on an Old World theme. We call it Philanthro-feudalism.

Those Chinese by contrast, so stuck in the past, are still looking to government to fund government things. They’re even spending public money on public projects—things like broadband internet for peasants and medical and technological research. Communists!

After all this time, they just don’t understand that the best guardians of public dollars are private bankers.

Here at home, we’re making remarkable advances! Our corporations recently gained the right to free speech and they’re so advanced that they’re preparing to spend billions to influence our next election! And a few pesky Wisconsin protesters aside, workers have realized that they don’t need rights, or jobs, or much in the way of wages.

The government of China clearly has a lot to learn. But meanwhile, let’s give ’em our thanks for still buying our bonds—and taking all those jobs off our hands.

One last thing, we’ve learned names matter. The poor aren’t eating so much these days in the US, but don’t call them peasants. They don’t like that. Here we call them consumers.

The F Word is a regular commentary by Laura Flanders, the host of GRITtv and editor of At The Tea Party, out now from OR Books. GRITtv broadcasts weekdays on DISH Network and DIRECTv, on cable, and online at GRITtv.org and TheNation.com. Follow GRITtv or GRITlaura on Twitter and be GRITtv's friend on Facebook.

January 24, 2011

The one issue that mattered for ordinary Americans was whether Obama pushed China hard enough on undervaluing the yuan

by Dean Baker

When China's President Hu Jintao came for his state visit last week, the White House press corps completely ignored almost all the substantive issues raised by Hu's visit. The domestic policy issues raised by this trip were altogether invisible in the reporting in major news outlets.

The news accounts were filled with the long list of items that President Obama was likely to raise with President Hu. There are issues about China respecting the patents and copyrights of US firms. The US has concerns about market access in China for our retailers, our financial firms and some of our manufactured products.

And then there are issues about the relative value of the dollar and yuan. Yep, the White House press corps got together the whole list, presented it to the public, and then went home and had a drink.

If these reporters actually had to cover the news to get a paycheck, then this checklist of concerns would have been just the beginning of their job. It's great for the Obama administration to come up with a wishlist that it would like from China's leadership. But this is not Disney World. China doesn't hand the United States everything on its wishlist.

China is a superpower that doesn't have to do whatever the United States wants. It makes concessions to the United States in exchange for items on its own wishlist.

This means that the United States is not going to get everything on its list. In fact, President Obama must decide which items he will prioritise with China and put these items first, as opposed to other items which he will tell Hu are of less consequence. The real job of reporting in Washington last week should have been trying to find out the actual priority that President Obama was assigning to the various items on his list.

This is what the public needs to know: different items will obviously matter more to some people than others. Most people in the United States probably don't give a damn if the Chinese pay Bill Gates for making copies of MS Windows. The public may even applaud if Chinese companies make unauthorised copies of Pfizer's drugs, so that more people in China can afford the medicine they need to save their life. They probably also don't care much if China's bureaucracy makes it difficult for Wal-Mart to expand or for Goldman Sachs to be a big player in China's financial markets.

But most of the public really does have a very big interest in the value of the yuan against the dollar. If the dollar is overvalued against the yuan by 30%, then this has the same effect as the United States imposing a tariff of 30% on the items that we may try to export to China. It is pretty hard to export goods if you impose a 30% tax on them.

On the other side, a currency that is overvalued by 30% is equivalent to providing a subsidy to China's manufacturers of 30% for the goods that the United States imports from China. A 30% subsidy for imports gives them a very large advantage competing with US-made goods.

Not surprisingly, this overvaluation is making it very difficult for US manufacturers to compete with China. The overvaluation of the dollar against the Chinese yuan (and other currencies) is the main reason for the huge US trade deficit. It is also one of the main reasons that the country has lost 6 million manufacturing jobs in the last dozen years.

The loss of relatively well-paying manufacturing jobs has put downward pressure on the wages of large segments of the US workforce. It is one of the main factors behind the growth of inequality in the United States in the last three decades.

So, we know that the value of the yuan was one of the items on President Obama's wishlist, but we do not know how high up it was on the list. Did President Obama tell President Hu that he doesn't care about Microsoft and Pfizer and Wal-Mart and Goldman; he just wants to see the dollar fall against the yuan?

Or did Obama tell Hu that he would like to see the yuan rise against the dollar, but he understands the problems that this would create in China. Instead, Obama may have suggested that Hu do more to protect Pfizer's patents and swing a few more deals to Goldman.

The fact is that the public has no clue as to what the Obama administration's priorities were in negotiating with China – because the media made no effort to find out. It somehow escaped the White House press corps, but the deals with China are, first and foremost, about battles over domestic policy. President Obama either pushed for Goldman Sachs or he pushed for the nation's workers, but it doesn't make sense that he pushed for both.

The media, apparently, are not going to tell the American people which side the President chose. Fortunately, the currency markets will.

January 22, 2011

President Obama is waxing ebullient on the jobs front. He's partnered up with GE CEO Jeffrey Immelt, and they are both proclaiming that the US will again be a robust manufacturing and exporting nation. They have rejected the model for the US as a mainly consuming and service oriented nation. That's all to the good. But Obama seems to have placed too much faith in the corporate CEOs. He seems to think they're going to stop outsourcing, and, out of the goodness of their hearts, they're going to start creating jobs here at home. But the official US government still has in place laws and policies - and in particular tax policies - that actually encourage outsourcing. Nancy Pelosi, when the Democrats controlled the House, said after passing a bill which would have reined in outsourcing: "In this legislation, which is job creating, it closes the loophole which has allowed businesses to ship jobs overseas. Can you believe that we have a tax policy that enables outsourcing? So if you have one thing to say about this bill to your constituents, you can say that today, you voted to close the loophole to ship U.S. jobs overseas and giving businesses a tax break to do so. It is not right. It will be corrected today.” This was in May, 2010. Of course, this bill never made it into law because it was filibustered by Republicans in the Senate. Sorry, Nancy.

Closing the loophole that has allowed businesses to ship jobs overseas? Well, sorry to say that loophole was never closed! President Obama though wants us to believe that, regardless of that loophole being closed, CEOs like Jeffrey Immelt are going to be nice guys and create local manufacturing jobs here in the US even though it is going to lower their profit margins, even though the loopholes for shipping jobs overseas are still open! Is he being naive? And then there is this from Robert Reich:

General Electric and other companies are signing up for deals with China involving energy and aviation manufacturing. But much of this will be done in China. GE’s joint venture with Aviation Industries of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes) will be based in Shanghai.

Will the real GE please stand up? Corporations are required by law to maximize their profits. This means that they will lower their expenses by getting the cheapest labor wherever they can get it. And American labor is relatively expensive compared to Chinese labor. So Obama is skating on thin ice. His bravado overlooks the underpinnings of law that give American corporations huge incentives for creating jobs overseas and outsourcing American jobs. Sure, GE wants to sell to the Chinese. But this doesn't mean that those products will be exported from the US. In the last ten years 42,000 American factories have closed. Millions of jobs have been lost. And now Mr. Nice Guy, Jeffrey Immelt of GE, is going to forego maximizing profits and his salary and his duty to shareholders in order to do a favor for President Obama and create some jobs in the US? What game is he playing? Mr. President, where are the legal underpinnings that would make sure that this will happen? You have a Congress that won't even close loopholes that would encourage job creation in the US. Do you have the feeling you're teetering on the brink? You said you've moved us back from the abyss. But have you? The abyss still looms because now for sure with a Republican controlled House, no loopholes that encourage and enable outsourcing will ever be closed unless and until Democrats control both Houses and the filibuster rules have been changed. Mr. President, you are whistling Dixie, in the dark, and past the graveyard too!

BEIJING — Aided by at least $43 million in assistance from the government of Massachusetts and an innovative solar energy technology, Evergreen Solar emerged in the last three years as the third-largest maker of solar panels in the United States.

But now the company is closing its main American factory, laying off the 800 workers by the end of March and shifting production to a joint venture with a Chinese company in central China. Evergreen cited the much higher government support available in China.

It looks like the right hand doesn't know what the left hand's doing. It seems like not only does China have cheaper labor, but they have more government support for American companies that want to build plants and create jobs there! The US on the other hand has no industrial policy, no set of incentives in order to have companies, domestic or foreign, build more plants in the US. And there are no unions to speak of that would fight for the rights of American workers. America, for all intents and purposes, has been deunionized starting with Reagan's firing of the air traffic controllers which effectively put their PATCO union out of business.

The United States is rapidly becoming the very first "post-industrial" nation on the globe. All great economic empires eventually become fat and lazy and squander the great wealth that their forefathers have left them, but the pace at which America is accomplishing this is absolutely amazing. It was America that was at the forefront of the industrial revolution.

It was America that showed the world how to mass produce everything from automobiles to televisions to airplanes. It was the great American manufacturing base that crushed Germany and Japan in World War II. But now we are witnessing the deindustrialization of America. Tens of thousands of factories have left the United States in the past decade alone. Millions upon millions of manufacturing jobs have been lost in the same time period.The United States has become a nation that consumes everything in sight and yet produces increasingly little. Do you know what our biggest export is today?

Waste paper. Yes, trash is the number one thing that we ship out to the rest of the world as we voraciously blow our money on whatever the rest of the world wants to sell to us. The United States has become bloated and spoiled, and our economy is now just a shadow of what it once was. Once upon a time America could literally outproduce the rest of the world combined. Today that is no longer true, but Americans sure do consume more than anyone else in the world. If the deindustrialization of America continues at this current pace, what possible kind of a future are we going to be leaving to our children?

The US is embarked on its own destruction thanks to the "small government" mantra of the Republican controlled Congress. Small government means no industrial policy except by lobbyists seeking special favors for their particular corporate sponsors. It means that US government policy will favor US business but not necessarily US workers. Unless and until the US can adopt policies which favor job creation in the US, US workers will be left out in the cold. And President Obama's soaring rhetoric about cooperation with CEOs like Jeffrey Immelt will be just that: rhetoric.

January 19, 2011

Highlighting today’s summit between Chinese President Hu Jintao and President Obama is China’s agreement to buy $45 billion of American exports. The President says this will create more American jobs. That’s not exactly right. It will create more profits for American companies but relatively few new jobs.

Nearly half of the deal is for two hundred Boeing aircraft whose parts come from all over the world. The rest involves agricultural commodities that don’t require much U.S. labor because American agribusiness is highly automated, and chemical and high-tech goods that are even less labor-intensive.

General Electric and other companies are signing up for deals with China involving energy and aviation manufacturing. But much of this will be done in China. GE’s joint venture with Aviation Industries of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes) will be based in Shanghai.

Here’s the real story. China has a national economic strategy designed to make it, and its people, the economic powerhouse of the future. They’re intent on learning as much as they can from us and then going beyond us (as they already are in solar and electric-battery technologies). They’re pouring money into basic research and education at all levels. In the last 12 years they’ve built twenty universities, each designed to be the equivalent of MIT.

Their goal is to make China Number one in power and prestige, and in high-wage jobs.

The United States doesn’t have a national economic strategy. Instead, we have global corporations that happen to be headquartered here. Their goal is to maximize profits, wherever they can make the most money. They’ll make things in America for export to China when that’s most profitable; they’ll make it in China and give the Chinese their know-how when that’s the best way to boost the bottom line. They’ll utilize research and development wherever around the world it will deliver the biggest bang for the dollar.

Meanwhile, Republicans and deficit hawks are cutting publicly-supported R&D. And cash-starved states are cutting K-12 education, and slashing the budgets of their great public research universities, such as the one I teach at.

No contest.

And no hyped-up trade deals are going to change this fundamental imbalance.

Some say all we need to do is put our currencies in better balance. But even if the Chinese upped the value of the yuan and the US (courtesy of the Fed) reduced the value of the dollar – so everything they bought from us was cheaper and everything we bought from them, far more expensive – they’d still win. We’d have more jobs than now because our exports would be more attractive in world markets, but those jobs would summon fewer goods from around the world. In other words, we’d be poorer.

Let’s get real. We’re losing ground. The U.S. labor force is now smaller than it was before the Great Recession began and most American families are worse off. December’s unemployment rate dropped to 9.4 percent from 9.8 percent but almost half the improvement was due to 260,000 people dropping out of the labor force.

Average hourly wages grew by three cents in December; weekly wages, by $1.02. And almost all the gains in income occurred at the top. The major assets of rich Americans are financial – whose values have increased as corporate profits have grown. The major assets of the middle-class asset are their homes, whose values continue to drop.

The President now says the answer is to help American business. “We can’t succeed unless American businesses succeed,” he said recently. “And I’m going to do everything I can to promote their ability to grow and prosper.”

But the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans.

Republicans say the answer is to reduce the size and scope of government. But without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn.

China is eating our lunch. Why? It has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for shareholders.

Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, Locked in the Cabinet, and his most recent book, Supercapitalism. His "Marketplace" commentaries can be found on publicradio.com and iTunes.

January 04, 2011

Among all the low-wage nations in the world, China has become the ultimate threat to U.S. workers. The combination of misery-level wages and a highly efficient repressive apparatus, serving a slavishly pro-corporate government, gives China the best "business climate" imaginable for U.S. corporations.

China's average manufacturing wage levels had been about 3 percent of U.S. wages, below the still-miserable 10 percent of Mexican workers, according to economist Jeff Faux in The Global Class War.

But Wisconsin has just witnessed a major firm moving some production back from China due to sharply rising costs. Master Lock, a subsidiary of Fortune Brands, has brought back three dozen jobs to its highly-automated lock-making operation in Milwaukee, where it now employs a total of 379.

While the initial gain in jobs is very modest, this could potentially lead to other firms re-thinking their long-term strategie built around low-wage labor. It certainly ought to encourage progressive public officials and labor to renew their push for an industrial policy to revitalize our manufacturing base.

Throughout the 1990s, Master Lock had ended the vast majority of production in Milwaukee at its giant inner-city lock-making factory, which employed 1,300 UAW Local 444 members. It shifted the jobs mostly to China, with some going to Mexico.

The shutdown was yet another blow to Milwaukee's North Side industrial belt, which has also lost tens of thousands of jobs at plants like AO Smith (later Tower Automotive, Chrysler, Johnson Controls, and Briggs & Stratton). The loss of almost 1,000 union jobs added to the neighborhood's fast-rising poverty.

But Master Local made the surprise move back to Milwaukee after being hit with a series of major cost increases in China:

HIGHER WAGES: Despite the lobbying and exit threats of U.S. corporate leaders, the Chinese government--facing a shortage of workers and a a rising tide of labor revolts at high-profile firms like Honda and Foxconn—has been forced to recognize labor rights. Thirty provinces have raised the minimum wage, some by over 20 percent. Wages are now at about the same level as Mexico, some experts say.

US-based firms had managed to water down a package of labor-law reforms providing worker rights that was proposed in 2006: "American and other foreign corporations that have lobbied against it by hinting that they may build fewer factories here." But the multinationals could not hold back the mounting wave of worker unrest forever.

However, despite the recent raises in wages, it would be highly premature to imagine that China's industrial workers are gaining a fair share of the vast wealth they produce.

China--despite all the hype about its emergence as an economic superpower--is "booming" only for a small minority while workers and the rural poor continue to live in misery. "One standard measure of social health is the U.N. Human Development Index," Noam Chomsky points out. "As of 2008, China ranks 92nd—tied with Belize, a bit above Jordan, below the Dominican Republic and Iran."

Further, inequality has been increasing: "The labor income share of Chinese G.D.P. declined from 57 percent in 1983 to only 37 percent in 2005. (The ratio has stayed at that level since then.)"

RE-VALUED CURRENCY: Under severe pressure from the Obama administration in response to China's enormous trade surplus with the US, China has lowered the exchange rate between the dollar and the tightly-controlled value of its yuan. With the dollar now worth 20% less against the yuan, US goods are now more competitive world-wide.

SHIPPING COSTS SOAR: Shipping costs from Chinese ports have quadrupled in the last year.

These jolts encouraged Master Lock to look back at the plant where it first rose to proimince, back in Milwaukee. Unlike many other firms, Master Lock did not entirely shut down its production operations and sell off or demolish its old plant.

The corporation decided that it did not want to be entirely dependent on China, where it leases space in three plants and has about 20 vendors providing parts. Master Local senior vice president Robert Rice explained the corporate strategy, as the Milwaukee Journal Sentinel reported:

"If you divested in capital equipment and put all your eggs in the China basket, it means you could get caught in the China bubble," said Rice, who visits China four times a year.

"If you get caught in the China bubble, you have to chase production to the next low-cost player."

Often that means Thailand or Vietnam, which are fine for shoes and textiles. But Rice and others say those nations lack China's first-world infrastructure, supplier networks and its ranks of university-trained managers and engineers.

These days, Milwaukee can make locks from start to finish that are cost competitive with Asian rivals. Turning everything around, Master Lock even exports locks to China and Europe from Milwaukee, Rice said.

The return of 36 jobs to Milwaukee's North Side industrial belt represents just a tiny portion of the 80 percent of manufacturing jobs which Milwaukee lost between 1977 and 2002. But Master Lock's move back to Milwaukee has a much larger significance than the sheer numbers.

It demonstrates that corporations do not become all-powerful in controlling everything affecting their bottom lines once they move operations offshore. Many CEOs may harbor a fantasy of "putting every factory on a barge" to continually seek out the cheapest labor, as former GE CEO Jack Welch memorably put it, but workers will finally tolerate only so much exploitation.

Further, even with all their power to play governments off against each other, corporations like Master Lock still face unpredictable circumstances that ultimately can force them to rely upon the productive base of the US and American workers.

INDUSTRIAL POLICY NEEDED

What would it take to start the rebuilding of US manufacturing with more jobs returning from Mexico and China? Imagine the possibilities if the federal government developed a large-scale industrial policy--spanning training workers in new skills, providing energy savings, and the promotion of products needed by the public sector (eg., transportation and energy-generating equipment), sensible tax policies to reward domestic producers-- that would encourage firms to stay in the US, provide decent wages and benefits, and recognize unions.

But such a step toward more economic democracy would surely provoke howls of protest from free-market fundamentalists who want no public voice in the economy--only public subsidies without any strings.

And it would also require a fundamental shift in strategy among CEOs who are convinced that the low road—paying the lowest possible wages and the avoidance of any civic responsibility for needs like health and education—are the route to long-term success.

December 20, 2010

The recent bill that passed Congress that extended the Bush tax cuts for two years, funded unemployment insurance and did a few other things will undoubtedly create more "economic activity." But will it create jobs? That's the 64 trillion dollar question. Economic activity is not synonymous with job creation although that's the theory Obama is gambling his Presidency on. Economic activity is synonymous with positive GDP growth, but GDP growth has been positive since the third quarter of 2009. GDP growth has been positive for 5 straight quarters and hence by definition the US is officially not in a recession and hasn't been for the entire year of 2010. However, there is still an official unemployment rate of about 10% and an unofficial unemployment rate of 17%. At the same time job growth has been anemic. About a million jobs have been created in 2010 which is more jobs than were created during the entire Bush Presidency, but that isn't even enough to cover new entrants into the work force. About 100,000 new jobs per month are required just to stay even. That's 1.2 million jobs a year. Therefore, taking new entrants into the job force into consideration, there has actually been net negative job growth for the last 10 years including Obama's Presidency!

Something like 8 million jobs were lost during the Great Recession. Currently, there are over 400,000 initial claims for unemployment insurance every week. The statistics are ominous but, what is worse, government officials don't seem to have a clue as to why this is happening. There is no explanatory narrative, and their only theory is that increased economic activity will lead to job creation. Not necessarily so. What is certain is that the Obama tax cut plan will drill another trillion dollar hole in the national debt. And it will likely create jobs not in the US but in China and other Asian countries where labor is much cheaper than in the US. It's called labor arbitrage. When barriers to trade fall as they have with the current free trade penchant, businesses will move jobs to whatever country has the cheapest labor force and in today's world that means China. One is hard put to purchase a product not made in China. Consequently, increased economic activity will mean that GDP will increase as consumers buy more products MADE IN CHINA. That translates into few, if any, jobs created in the US.

The Obama administration is also trying to increase exports to serve the growing consumer markets in the developing countries of the world. That would arguably create jobs in the US. Only problem is that the transnational corporations, which are eager to serve those markets, prefer to locate their production plants not in the US but in those countries next to the emerging consumer markets. That way they get the best of both worlds. They get cheap labor AND they are close to the markets they want to serve. This leaves the US at a huge disadvantage. Corporations are eager to serve the US consumer market which is 70% of US GDP, but they don't want to locate production plants in the US because the cost of labor is too high.

So where does this leave the Obama administration. In a hole, likely, having added greatly to the national debt without having created many jobs, certainly not even enough to accommodate new workers entering the labor force. The Fed's attempts to get people to borrow and spend by lowering interest rates and by quantitative easing have been an abysmal failure when it comes to job creation. The money has been borrowed and invested primarily in emerging markets where profits are greater - not in the US. Government officials and the punditry seem to think that, if only they could get Americans to consume more, all would be well, but all would not be well as consumption is not correlated with job creation as long as everything Americans consume is produced elsewhere.

Automation, computerization and robotization have also decreased the need for much skilled labor. As a result the only jobs left are for those with a minimum of skills and those workers can be acquired cheaply in other countries. Professional jobs are also being outsourced to India and elsewhere as cheap internet connections make it profitable to outsource any jobs whose output is primarily paper which can be transmitted electronically to its final destination. Legal and engineering jobs, therefore, have been essentially outsourced to countries with college educated work forces which can handle professional job tasks. This makes it highly unlikely that the US can educate its way out of this dilemma. There has been much handwringing over the pitiful state of the US educational system which is inferior to those of many other countries of the world. But even improvements in education will not fix the problem that results from the fact that educated professionals in other countries will work for one tenth of the expected salaries in the US.

So what can be done about American jobs? What have other countries done? Germany, for example, has a healthy economy based largely on exports and also on the fact that German consumers buy products mainly produced in Germany. For all intents and purposes Germany has healthy tariffs although they don't call them that. Germany has a VAT tax which must be paid not only by companies producing products in Germany, but also, to be fair, by products entering the country as imports. The imports must pay the entire VAT tax in one fell swoop whereas German producers merely pay at each stage of production which spreads the tax over several companies. So imports are discouraged and German producers are encouraged. Other successful countries have in one way or another encouraged domestic producers. Government subsidies have given certain industries an edge, and, consequently, have sustained jobs in country. The US should learn from the example of other countries.

Obama and others hope that jobs will be created indirectly as a result of tax breaks. But this policy has historically proven to be a failure. It's a continuation of Reaganomics and supply side economics which was practiced by the Bush administration with the result that no net jobs were created in the entire Bush Presidency. The only jobs created by Bush were in the military and with private defense contractors. So Obama is gambling his Presidency on a failed Bush policy. One doesn't need a crystal ball to predict what the outcome will be: anemic job creation and a one term Presidency for Obama.

Other countries have industrial policies in which government works with industry in such a way as to create products both for internal consumption and for a successful export economy. This may involve intelligent subsidies instead of the lobbyist sustained subsidies in the US for malignant industries like oil and agricultural products. Other countries manage to place tariffs on imported products which compete with industries which they are trying to promote. The US penchant for free trade is only shooting itself in the foot. The US government funded itself entirely by by means of tarrifs from its founding up until the First World War - over 100 years. In short, US supply side economic and free trade policies are working to its disadvantage and to the advantage of its competitors. Meanwhile, US workers are being left out in the cold. They are being hung out to dry.

Finally, the one thing that is anathema to Republicans and Tea Partiers is direct job creation by the US government, but that may ultimately be the only alternative left to it after all the monetary and supply side economic policies have been exhausted. Franklin Roosevelt created the Civilian Conservation Corps and the Works Progress Administration which put millions of Americans to work during the 1930s. The US Congress became the country's largest employer. Much needed repairs to infrastructure were carried out as well as other beneficial projects. Today infrastructure is badly in need of repair and there are many useful potential jobs which private enterprise is loathe to undertake because they are not deemed to be profitable. Instead of just giving money to long term unemployed, they could be put to work in ways which would not only benefit the economy but would provide a source of labor for infrastructure improvement and beautification.

(Reuters) - China rebuffed on Friday a U.S. plan to set target limits for trade imbalances and Germany dubbed the Fed's money-printing policy "clueless," setting the stage for what could be a fractious G20 summit next week.

Washington believes an undervalued yuan is a major cause of economic imbalances and has pressed Beijing, largely in vain, to let the currency rise more swiftly to reflect the strength of what is now the world's second-largest economy.

The waters of the debate have been muddied by the Federal Reserve's decision to buy $600 billion in long-term bonds with new money in an effort to revive the flagging U.S. economy.

Resentment is rumbling worldwide that the initiative will generate even more instability by ramping up currencies against the dollar, inflating asset bubbles and increasing inflation.

"With all due respect, U.S. policy is clueless," German Finance Minister Wolfgang Schaeuble told a conference.

"(The problem) is not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market and now to say let's pump more into the market is not going to solve their problems."

Policymakers from the world's new economic powerhouses in Latin America and Asia have said they would consider fresh steps to curb capital inflows after the Fed's move.

Zhou Xiaochuan, China's central bank governor, said while Beijing could understand that the Fed was implementing more monetary easing in order to stimulate the U.S. recovery, it may not be a good policy for the global economy.

NO BALANCE

Efforts to reduce imbalances that are destabilizing the global economy will top the agenda of the November 11-12 summit of the Group of 20 forum of leading economies in Seoul.

But China and Germany have now both opposed a plan floated by U.S. Treasury Secretary Timothy Geithner last month to cap current account surpluses and deficits at 4 percent of gross domestic product.

"Of course, we hope to see more balanced current accounts," Chinese Vice-Foreign Minister Cui Tiankai told a news briefing. "But we believe it would not be a good approach to single out this issue and focus all attention on it. The artificial setting of a numerical target cannot but remind us of the days of planned economies." (Ed. Note: What a twist - China accuses US of doing something reminiscent of the bad old days of communism!)

German Economics Minister Rainer Bruederle dismissed the proposal at the time as smacking of old-style central planning.

Cui, China's chief G20 negotiator, also rejected any attempt to set target ranges for the yuan to appreciate.

"That would indeed be asking us to manipulate the ... exchange rate, and it is something that we will of course not do," Cui said.

ASEAN, the 10-nation group of southeast Asian countries, will also raise concerns at the G20 over the U.S. proposals.

"We would like to work with G20 to correct imbalances," Thai Finance Minister Korn Chatikavanij said in the Japanese city of Kyoto where Asia-Pacific finance ministers are meeting.

"But we are concerned that the U.S. plan about current account balances might lead to trade protectionism."

The Asia-Pacific Economic Cooperation (APEC) forum in Kyoto, which Geithner will attend, will also provide an opportunity for emerging economies to voice their views of the Fed's action.

INTEREST RATES

Japan's central bank on Friday gave details of its own asset-purchase programme, announced last month. Worth 5 trillion yen ($62 billion), it is just a tenth the size of the Fed's scheme.

By pointing out the difference in scale, Economics Minister Banri Kaieda suggested that the Bank of Japan might face calls in the future for an expanded scheme.

Cui said he was worried at the prospect of a flood of money pouring into global markets in search of higher yields. As the issuer of the world's main reserve currency, the United States needed to adopt a responsible position.

"They owe us some explanation," he said. "I've seen much concern about the impact of this policy on financial stability in other countries."

An official newspaper said China needed to respond by raising interest rates again following a surprise increase on October 19.

Inflationary pressures prompted both India and Australia to raise interest rates this week.

Thailand's Korn said he accepted that the country's currency, the baht, would appreciate due to strong economic fundamentals, but he wanted to avoid damage from a sudden reversal in speculative money.

"We are willing to take whatever measures when necessary," he told Reuters before the start of a meeting of the APEC finance ministers.

Thailand has imposed a 15 percent withholding tax on interest and capital gains earned by foreign investors on Thai government bonds. Brazil has also taxed foreign buyers of its bonds.

November 01, 2010

Recently China overtook Japan to become the world's second largest economy. Yet some western observers notably Steven Hill consider China to be a still developing economy. How can this be possible that at one and the same time China has become an economic powerhouse but yet is still developing? This is the paradox of China. The truth of the matter can be found in China's huge population of about 1.3 billion people. There is a split between the urban rich and the rural poor. The urban areas are relatively wealthy and well developed, but the rural areas are relatively poor. Approximately half of China's population is engaged in subsistence farming. These are the people that are "living" on a couple of dollars a day" while the urban areas boast many millionaires and billionaires. In 2009 China had the world's fastest growing group of millionaires, an elite club that rose 31 percent from 2008 to encompass 477,000 people. This growth led China to overtake Britain as the world's fourth largest home to rich people.

So China is a paradox but not an enigma. There are a lot of poor as defined by their contribution to GDP and a lot of rich as defined by their contribution to the market economy. A lot of China's rural farmers migrate to urban areas during certain times of the year to participate in the market economy. The rest of the year they are subsistence farmers. What subsistence farming means is that they are largely self-sufficient in terms of producing enouch to provide for their needs without participating in the market or cash economy. They are, therefore, only poor in the definition of those who only consider wealth as measured by the exchange of goods and services. To those people self-sufficiency doesn't count. It's not included in GDP. Looked at differently though, China could be considered to have the best of both worlds: a self-sufficient rural population and a wealthy urban population. The world's truly poor are the urbanized, jobless poor who make a living scavenging in garbage dumps. If one can't be a self-sufficient farmer, then one must have a job or be really and truly poor. An urbanized poor person living on a couple of dollars a day is in a vastly different situation than a rural poor person engaged in subsistence agriculture living on a couple of dollars a day. On the one hand, you have the desperately poor who are forced to live in a cash economy in which they are jobless. On the other, you have a population which provides for most of its own needs without participating in the cash economy. For the latter group, whatever cash they do make is a bonus on top of what they can provide for themselves.

So I would argue that far from being an impoversished or underdeveloped nation, China really has the best of both worlds. This is contrasted with the US, for example, where the population is almost entirely urbanized. Only 2% of the population is involved in agriculture. So the rest are "urbanized" in a sense regardless of where they live and are dependent on a job to provide for all their needs. They live almost entirely within a cash economy and are almost completely non-self-sufficient. That's why unemployment is such a big deal in the US. China, on the other hand, is lucky not to have the corporate farms which have taken over the job of food production in the US using a combination of highly productive technology and extremely cheap immigrant labor. From my point of view, China, even though many of the self-subsistent farmers still use the water buffalo, is vastly better off because of the distribution of agriculture over a largely self-sufficient population. And we haven't even considered the wealth of China's government which is an entity above and beyond the Chinese people themselves.

To understand the “real” China, it is necessary to see it through the double lens of its paradoxical condition as both a major economy and a still-developing country. China is filled with contradictions and serious challenges. When I visited China in August and September of 2008, after the Olympics, the country that I saw, whether in Shanghai, Beijing or the rural areas, was a long, long way from being a global leader in any meaningful sense. Two hundred million people out of a working population of nearly 800 million are migrants, chafing at their lowly status and rotten wages. Inequality is rampant. Returning from the rural areas—where the vast majority of Chinese still live—to cities is like a form of time travel, moving from feudal conditions where plowing is still done by water buffalo to a land of impressively jutting skyscrapers.

It's true that "inequality is rampant," but China would be much worse off if it had an entirely urbanized economy with little subsistence farming and the vast majority of the poor living in garbage dumps which is the way it is in many countries as detailed in Mike Davis' book, "Planet of Slums". Davis is writing precisely about the urban poor as opposed to the self-subsistence farmers who are only poor in the sense of being virtual non-participants in the market economy. And Steven Hill doesn't even stop to consider the autonomous wealth and power of China's government. To start with, the US government is indebted to the Chinese government to the tune of $772 billion as of May 2009. It has only increased since then. The US is running a trade deficit with China of approximatyely $60 billion per month. This represents a structural indebtedness of the US to China. The US as a whole has a national debt of $13.7 trillion. The China Investment Corporation is a sovereign wealth fund which has $332 billion with which to invest around the world. China is buying up natural resources and cutting deals around the world while the US lavishes its money - more than the rest of the world spends on its military establishments combined - on a military establishment that has military bases throughout the world. The notion of a sovereign wealth fund is beyond the pale of debate within the US where the only discussion is around how much debt is acceptable.

And that's just the beginning of Chinese government wealth. The People's Republic of China has US $2.5 trillion in currency reserves. With the US' growing indebtedness to China, China has really become the US' banker. (See "Uncle Sam, Your Banker Will See You Now.") US goading of China regarding revaluing its currency falls on deaf ears because China can argue that it's still a developing country (with all those self-subsistent farmers they can have it both ways), and, besides, China holds the financial power over the US due to the fact that the US is dependent on China for huge sums of money to pay its bills. China is the creditor nation despite having a lot of poor people while the US is the debtor nation with a middle class rapidly becoming poor.

China's huge governmental wealth puts it in a position to make huge investments in infrastructure. In 2008 China put $586 billion into infrastructure development including high speed rail, airport development and broad band infrastructure. According to press reports:

"The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing - an urgent need in many parts of the country - as well as increased spending on rural infrastructure.

"Money will also be poured into new railways, roads and airports. Spending on health and education will be increased, as well as on environmental protection and technology."

Despite the American Infrastructure and Reinvestment Act, it has allocated a relative paltry sum to infrastructure development. James Carlini said:

A $700 billion bailout package would have been enough to do many of these large infrastructure initiatives in the U.S.

Listening to reports of non-deserving executive bonuses, hunting trips, junkets to resorts, and acquisitions coming out of the bailout money in the U.S., it sounds like the Chinese have a better handle on national initiatives and how to prioritize building lasting infrastructure.

China is stepping up to the plate as it allocates resources to clean up the environment and provide a social safety net for its citizens. It is not there yet, but the trend is for rapid development in many directions simultaneously. They are putting their money into economic development while the US puts its money into the military-industrial complex. Meanwhile, the US dithers, not able to get its act together or agree on anything. With no national industrial policy, immense debt and a political system seemingly invented to create gridlock, the US goes backwards while China goes forward. While the US regresses, China is not standing still. If Republicans take over Congress, we'll see a shredding of what little safety net the US has. What now seems like an almost pathetic attempt to institute a national health care plan is likely to be repealed or gutted. All public services are in jeopardy as states and municipalities struggle with huge budget deficits. Is this what 234 years of democracy has wrought?

October 02, 2010

Robert Reich writes in his October 1 post that lowering the value of the dollar is not the way to create jobs in the US. Lowering the value of the dollar seems to be the US government's job creation policy at this time. The theory is that that will produce more exports because our products will be cheaper abroad and fewer imports because imported products will be more expensive. Mr. Reich contends that other countries will simply follow suit and lower the value of their currencies. Result: a currency war.

The other way the Obama administration seems to favor for creating jobs is just to wait for the natural dynamics of the US economy to create them. The theory is that the US economy is so resilient that, if we wait long enough, it will just naturally recover and things will go back to normal - normal being 5% unemployment. This might be called the cross-your-fingers-and-wait-and-see approach. This approach is doomed to failure for reasons that have been mentioned on this blog before - outsourcing of jobs and automation, to be succinct. OK, then, what are some other methods by which jobs might be created. Innovation, for one thing. The creation of whole new industries. Technological innovation has fueled capitalism for centuries. Recently, computers and the internet are good examples. Problem is there are no new innovations on the horizon. Especially ones of an exclusively American nature. While the computerization of the world was conceived, developed and capitalized on in the US, current innovative technologies like alternative energy are being pursued more vigorously elsewhere. Automoble technology was developed concurrently in other countries but at a time when outsourcing was impractical so the development of the automobile proceeded independently in a number of countries as if they were on separate planets. In today's world that would not be possible.

Labor arbitrage means that major production facilities will be located wherever the cost of plants, equipment and labor is cheapest. Automation means that most products can be manufactured with a minimum of human labor. So where does this leave Americans who need to work in order to have an income that will let them consume the products and services that they need in order to have at least a decent middle class life? In other words where are the good jobs at good pay going to come from? Of course, one alternative is for Americans to work for starvation wages. There will always be a certain number of low paying service jobs available. But in order to have widespread prosperity among the majority of the population, there are only a few remaining alternatives none of which is being given serious consideration at this time.

Alternative #1: The government sets an industrial policy and subsidizes the development of certain industries which can compete at a world class level. Such is the case with Finland where Nokia has competed successfully at a world level and as a result brought prosperity to Finland. This is also true in Germany which has successfully retained a manufacturing base and has profited from its exports.

Alternative #2: The government sets up public/private partnerships to internally develop the US infrastructure. This in turn will lead to the creation of more private sector jobs following in the wake of infrastructure development just as the development of the railroads or the interstate highway system opened up opportunities for private sector development.

Alternative #3: The US government can create jobs directly in areas that the private sector is not interested in. This was done during the Great Depression when FDR created the Works Project Administration (WPA) and the Civilian Conservation Corps (CCC). There is just as great a need for conservation type projects today and just as much of a lack of interest on the part of the private sector. In fact the private sector ususally is in the business of degrading the environment rather than protecting or enhancing it. This creates an opportunity for government to be in the business of enhancing the environment in such a way that it is not in competition with private enterprise. There may be other areas where government can directly create jobs in ways that do not compete with private enterprise or in ways that are symbiotic with private enterprise. It is possible for government and private enterprise to be involved in a positive sum game, one which is beneficial for both sectors.

Alternative #4: Spread the wealth. Redistribution of wealth. Since income and wealth are becoming more centralized and concentrated (23.5% of income in 2007 went to the upper 1% similar to 1928 just before the Great Depression), the upper income brackets can be taxed heavily and the money used to create jobs ala the WPA and CCC or it can be redistributed by providing unemployment benefits and food and housing subsidies. In other words the social safety net could be greatly expanded. My preference is for the direct and indirect creation of jobs since I think that work is more ennobling than permanently remaining on the dole. Marx was right about the natural tendency of capitalism, particularly unregulated laissez faire capitalism, to centralize and concentrate capital in fewer and fewer hands. Economic inequality in the US has never been greater except just before the Great Depression.

The US is the most laissez faire capitalist country on the planet. At least it has been so for the last 30 years ever since Reagan became President. The lowering of tax rates on the upper income brackets and the deregulation of corporate industry has produced a society in which most of the economic benefits go to a very small number of people at the top. Other countries have prevented this phenomenon by means of their governments being more directly involved in their economies. Whether its the Euro zone, China, Japan or other prosperous nations, they are all - as governments - more directly involved in their economies than the US which has essentially a hands off policy between the government and the economy. Unfortunately for the US, these other nations are becoming more prosperous as the US loses ground. These capitalist hybrid economies especially in China are gaining while the US is losing. Another reason the US is falling further behind is that, while the other capitalist economies have been devoting large amounts of resources with a hands on policy towards their commercial sectors, the US has devoted huge amounts of resources with a hands on policy to its defense sector while maintaining a hands off policy towards its commercial sector. Unfettered, unregulated capitalism is proving to be not as successful an economic model as is hybrid capitalism.

Government involvement in the economy, what might be called a socialist-capitalist hybrid, seems to be evolving as the successful economic model of the 21st century. Governments that don't have industrial policies such as the US and leave everything to a hands off policy towards the economy seem destined to stagnation. They are heading in the direction of Third World status which is defined as a country with a very small, very wealthy elite surrounded by a very large poverty class. This seems to be what unregulated capitalism produces.

In the upside-down world that passes for our government, the House has just passed legislation pressing China to raise the value of its currency. According to House Ways and Means Committee Chairman Sander Levin (D-MI), "China's exchange-rate policy has a major impact on American businesses, and American jobs, which is what this is all about." That may well be true, and yet there is an important segment of American business, ranging from such American industrial icons as Corning, FedEx, General Motors, Goodyear Tire and Rubber, among many others, who have voiced their concern that such legislation would poison the well of U.S.-China commercial relations, exacerbating feelings of mistrust and suspicion. Last Thursday in New York, in a meeting with Chinese Premier Wen Jiabao, President Obama indicated that he wants to see "more action" relating to the value of the yuan. Other than the value of the yuan, there are significant and important trade issues with China extending to market access, technical data, patent protection and copyright infringement, which certainly need be addressed.

While the legislation has passed in the House, it remains to be seen whether the Senate will follow. Yet what is ironic is that here we have a situation whereby China, by holding down the value of the yuan, is able to flood us with cheap goods that many of our unemployed and the many newly impoverished can at least access. China's trade balance with the United States, over the first seven months of the year, has widened to $145 billion from $123 billion the year before. Significant? Yes. But hardly when you consider the distortions visited on us by OPEC and its allies in the oil industry.

The price of oil has escalated over the last decade by a factor of more than five and since the first months of the Obama administration has more than doubled by more than $40 per barrel (from the low $30/bbl to the mid $70/bbl). Multiplied by current oil consumption in the United States of some 20 million barrels a day, that comes to an increase of $800,000,000 a day, or near $300 billion a year going into the rapacious pockets of the Organization of the Petroleum Exporting Countries (OPEC) and the oil industry and its interests. That, with nothing for us to show for it expect having had our pockets fleeced. And then one needs ask, where is the outrage here, and where is our vigilant Congress, our administration, our somnolent Justice Department and Federal Trade Commission, not to speak of our oversight agencies such as the Commodity Futures Trading Commission (CFTC), while the oil boys are taking us to the cleaners? At least the Chinese are delivering bargains.

Where is the outrage from this White House at OPEC and its policies, and that of its putative leader, Saudi Arabia, restricting oil production to achieve artificially high prices and their supportive allies in the oil industry who benefit in the wake of the OPEC cartel's manipulations?

Where is the intercession by our oversight agency, the CFTC, led by Goldman Sachs alumnus Gary Gensler, in the highly suspect oil-trading activities on the commodity exchanges that keep prices at astronomical levels and have left large swaths of the oil trade itself puzzled (Please see "BP's Smoking Gun and the Manipulation of Oil Prices," 06.30.10)? In January of this year, the CFTC announced it would vote to set position limits on energy trading on the exchanges. Since then, a deafening silence. (Question: Are there laws in place that prohibit these "commissioners" from taking employment with the very firms/industries they are overseeing, or is serving on these commissions simply a pathway to a sinecure in the very industries under surveillance? And if so, how long can we tolerate it continuing?)

Bringing the price of oil down to levels that reflect a true market dynamic, say achieving a price level at the low $30/bbl, as was the case in February 2009, or less (please see "Why Are We Paying $50 a Barrel for $20 Barrel Oil?," 04.27.09) would save the nation hundreds of billions now being transferred to oil interests.

Would lower prices result in higher consumption? Yes. But paying oil interests to keep consumption in check borders on the insane. There need to be government programs that restrict the usage of petroleum-based gasoline (not biofuels nor electric, and so on) to current levels or less through voucher programs (please see "The Energy Solution That Dare Not Speak Its Name," 07.17.07) or whatever program is workable rather than the transfer of our national wealth to the oil nabobs.

Consider what those sums could do were they applied to a national infrastructure program such as high-speed rail or improvement of our inland waterways and port facilities, thereby enhancing our export capabilities and the thousands upon thousands of jobs that would result. We would even begin to give China a run for their money from our level and enhanced playing field.

September 30, 2010

BEIJING (Reuters) - China on Thursday warned that a House of Represenatives bill to penalize it for not letting the yuan rise faster could seriously affect bilateral ties.

In a relatively measured response, Foreign Ministry spokeswoman Jiang Yu said Congress should avoid steps that could harm relations, saying Beijing was "resolutely opposed" to the bill. But she declined to say whether China would retaliate.

The House of Representatives bill, which many analysts say is unlikely to become law, is aimed at pressuring Beijing to let its currency, also called the renminbi, rise faster by branding it in violation of world trade rules.

"Using the renminbi exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-U.S. trade and economic relations, and will have a negative effect on both countries' economies and the world economy," Jiang told a regular news briefing.

"We urge the members of the Congress to understand clearly the importance of China-U.S. trade and economic relations, and put a halt to protectionism so as to avoid hurting the interests of the peoples of the two countries and of the world."

Whether China would take any U.S. law on the yuan to the World Trade Organization was "hypothetical," she said.

The bill would need to be passed by the Senate -- far from certain and not likely until after congressional elections on November 2 when the U.S. political landscape could be greatly changed -- and signed by President Barack Obama to become law.

China's tight leash on the yuan is under intense scrutiny as countries around the world look to export their way back to economic health, raising concerns they will intentionally weaken their currencies to gain an edge.

PRICE ADVANTAGE

The bill allows the U.S. Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so that U.S. companies can request a countervailing duty to offset China's price advantage.

Earlier in the day, the official Xinhua news agency quoted China's Commerce Ministry spokesman, Yao Jian, as saying: "Starting a countervailing investigation in the name of exchange rates does not conform with relevant WTO rules."

That lawyer-like statement was relatively moderate compared with China's reaction to other disputes this year, including U.S. weapons sales to Taiwan, when Beijing froze military contacts with the United States.

"I don't think China will have any dramatic reaction to this bill's passing," said Jin Canrong, a professor of international relations at Renmin University in Beijing, who specializes in U.S.-China relations. "China wants to preserve the stability of overall relations."

The American Chamber of Commerce in China voiced its opposition to the Chinese currency legislation in an email, saying: "If enacted into law, the chamber does not believe the bill will be effective in achieving its objectives and would fail to create significant U.S. job growth."

The US is running a trade deficit with China of $5 billion a week. China loans the US huge sums of money in order that the US can keep taxes low and borrow the money it needs to run its government. Instead of enacting tariffs on Chinese imports, it has been US policy to beg the Chinese to revalue their currency. This is like pushing on a string. If the US doesn't like Chinese policy regarding their exports to the US, the US has direct recourse: it can put tariffs selectively on Chinese imports. But instead, probably because the US doesn't want to offend its banker, the US has allowed itself to be put into the subservient position of begging the Chinese to revalue its currency.

A recent report details the fact that the US is running higher trade deficits with trading partners that it has Free Trade Agreements (FTAs) with. The report entitled "Lies, Damned Lies and Export Statistics" reached this conclusion after an exhaustive examination of the data.

President Obama’s goal to double U.S. exports over the next five years to create two million new American jobs is widely supported. How to accomplish it is a subject of considerable contention.

Proponents of President Bush’s “Free Trade Agreements” (FTAs) with Korea, Colombia and Panama claim that passing these pacts is the best way to expand U.S. exports and create jobs. Obama administration officials have similarly argued that passing FTAs is a key component of the effort to double exports, especially in the context of the president’s recent announcement that he wants Congress to pass Bush’s FTA with Korea early next year.Yet, analysis of the actual outcomes of past U.S. FTAs show that the growth of U.S. exports to countries that are not FTA partners is as much as double the growth of exports to U.S. FTA partners. Moreover, with respect to Obama’s job creation goal, the United States has suffered trade deficits with most of its major FTA partners and with the group of FTA nations as a whole. Even as trade flows declined because of the economic crisis, as of 2009, the United States had a $54 billion trade deficit in goods with its 17 FTA partners, even when oil is excluded. And, contrary to the frequent claims made by proponents of the North American Free Trade Agreement (NAFTA) that U.S. farmers have benefitted from this model, the United States’ agricultural trade deficit with the bloc of 17 FTA partners increased.

This highlights why, especially now, an honest, data-based discussion about the economic impact of FTAs based on the NAFTA model is critical. People are entitled to their own opinions about NAFTA-style FTAs, but they’re not entitled to their own facts.

Among public concerns about job loss, the decimation of the U.S. manufacturing base, and the ballooning U.S. trade deficit, corporate lobbyists have unveiled a series of misleading and erroneous studies and talking points, alleging all sorts of benefits from NAFTA-style pacts. It is impossible to know whether these are deliberate attempts to distort the truth, or simply sloppy economics.

The fact is that US corporations and their lobbyists have used the 'free trade' pretext to export millions of jobs to China because labor there is cheaper than American labor. This practice is called 'labor arbitrage.' US corporations then import products from their Chinese subsidiaries back into the US market parking the profits offshore. This both denies the American people jobs and the government revenues. Not only is labor cheaper in Asia, but so is the cost of plants and equipment. The following is a prescient article written in 2005 that already foretells the asset bubble that burst in 2008.

The most obvious example of the effects of globalization in this country is our relationship with Asia. Over the past few years, we have not only outsourced our jobs, but have moved our manufacturing to the Asian countries, especially China and India. Corporate money has influenced our government to allow the transfer of practically any business into these new rising economies at the expense of American jobs. There are two major reasons for this interest. First, Asia is seen as the future of economic progress because of their tremendous population and potential buying power. Second, labor and manufacturing plant is so cheap that exorbitant profits can be made when Asian manufactures are sold here - at American prices of course.

It is not difficult to understand that when the cost of plant and equipment is about half of the costs required in the United States, and labor costs are only 10% of the costs in the United States, corporations will naturally choose to manufacture in Asia. Our government officials are no longer concerned about the common good of its citizens; rather they are interested in their personal gain to be acquired through corporate influence.

At home, our service industries can only exist as long as there is enough money circulating among the middle and lower classes to support the consumerism. Our Financial industry can only continue to exist as long as the asset bubble continues. Our only real source of income is our military weapons business. We supply most of the world's weapons. Where does the money come from to maintain our economy? It is the consistent growth of our national and personal debts that maintains the momentum of our economy. Our government needs to maintain that momentum for a while longer.

As far as our corporations are concerned, the writing is on the wall. Real, or long-term investment will be made in Asia where a huge population with rising incomes will eventually dominate the economic world. The unemployed population in China alone is greater than the entire population of the United States. As the income of the average American citizen continues to erode, we are viewed by the corporate world as a mature market. The United States is no longer a prime market for investment. It is time to reap the profits of past investments and maintain the cash cow as long as possible, or at least until a prosperous Asian economy can be built. Unfortunately, it is obvious that our government supports this corporate view, regardless of what their lips tell us.

A few years ago, these investments would not have happened. There were laws against unfair trade, concerning environmental issues, unfair labor practices, and a plethora of other rules and considerations for the public good. In the past few years many of these laws have been expunged or relaxed in the name of deregulation to allow for the international exploitation of labor. This is our government at work in behalf of their corporate constituencies.

Lest they lose their corporate sponsors, our media is now blaming Asia and especially China for the loss of our jobs and their excessive use of "our" oil. It is our own government that encourages companies to invest in foreign countries, even to the point of awarding tax breaks for doing so. It is our own government that is encouraging the displacement of American workers with cheaper foreign workers. China is not the villain here. It is our own government encouraging and aiding international corporations to move their business overseas in search of that Holy Grail, profits.

The National Association of Manufacturers and other pro-free trade groups have used faulty data to champion NAFTA style free trade agreements. Contrary to recent corporate claims, however, the trade balance in non-oil manufactured goods with U.S. FTA partners over 2008-2009 was a deficit of $97 billion. The NAM reported that “over the past two years FTAs have resulted in a U.S. manufactured goods surplus of nearly $50 billion.” To achieve this outcome, the NAM used “total export,” data, a measure including billions of “re-exports” of foreign products transshipped through U.S. ports but not made by U.S. workers. They counted these as "exports." When the domestic export data employed by the U.S. International Trade Commission is used, the opposite result is produced. The US is running a trade deficit with almost every FTA partner while running trade surpluses with non-FTA partners.

Obama's pro-free trade stance will leave him barking up the wrong tree. Fortunately Congress recently passed some legislation that holds the promise of clamping down on the egregious practices brought about by free trade agreements. But even these tenuous efforts are focused and fixated on currency manipulation instead of taking the bull by the horns and ending FTAs and making it less profitable for US corporations to ship jobs and plants abroad and import cheap products back into the US market.

Thom Hartmann makes the case for protectionist tariffs. And what we should be protecting ourselves against is not imports of products locally made and produced by local companies in China and elsewhere that can't be made or produced here, but products produced abroad by American corporations that could be made here. What's really at stake here and deserving of protection is American jobs. As long as American corporations can relocate plants, equipment and workers abroad and import products back into the American market, their profit margins will be greater. So American workers must be protected from American corporations who import from abroad under the guise of free trade.

WASHINGTON (AP) -- The House has approved legislation that would allow the U.S. to seek trade sanctions against China and other nations for manipulating their currency to gain trade advantages.

The 348-79 vote Wednesday sends the measure to the Senate, where its prospects are unclear. Senate supporters hope to get a vote on a similar proposal after Congress returns following the November congressional elections.

Supporters said the bill would allow the Obama administration to pressure China on an issue that they say has led to the loss of more than 2 million manufacturing jobs in the U.S. over the past decade.

The vote came as lawmakers scrambled to wrap up unfinished business so they can hit the campaign trail with a little over a month before the Nov. 2 elections. Polls show that the state of the economy and an unemployment rate that remains stuck at 9.6 percent are the top concerns of voters.

The measure was passed by a wide margin with 99 Republicans joining Democrats to vote yes. Those in opposition included 74 Republicans and five Democrats.

Supporters said the size of the vote should send a strong message to Beijing that Washington will not tolerate currency manipulation and other trade practices viewed as unfair to American workers.

House Speaker Nancy Pelosi said that in 20 years America's trade deficit with China has gone from $5 billion annually to $5 billion every week, an imbalance she said demanded action by Congress to protect American jobs.

"We do this because 1 million American jobs could be created if the Chinese government took its thumb off the scale and allowed its currency to respond to market forces," she said in a speech on the House floor.

American manufacturers contend that China's currency is undervalued by as much as 40 percent against the dollar. That makes Chinese products cheaper and more competitive in the United States and American products more expensive in China.

The legislation would allow the imposition of stiff sanctions on Chinese imports. It would expand the definition of improper government subsidies to include a government's manipulation of its currency to gain trade advantages. Currently, the Commerce Department does not consider currency manipulation as a government subsidy for which it can impose trade sanctions.

During the House debate, supporters cited studies that they said show the legislation would boost American exports and create more manufacturing jobs in this country.

"Some credible estimates are that we could return a million American jobs to this country," said Rep. Xavier Becerra, D-Calif., in urging support for the legislation. "We can either take bold steps or we can take baby steps."

Opponents said the legislation would boost the cost of clothing, toys and other goods that American consumers buy and also ran the risk of sparking retaliation by China against American exports.

"The available evidence is that the price of many of these Chinese goods will go up 10 percent, a pair of shoes that a mother needs for her child to go to school ... toys at Christmas, all become more expensive," said Rep. Jeb Hensarling, R-Texas.

Supporters rejected that argument, saying it is critical in hard economic times to protect U.S. jobs.

"Without a job, you can't buy goods at any price. This bill is about jobs," said Ways and Means Committee Chairman Sander Levin, D-Mich.

Passage of the proposal was cleared when Levin led an effort to craft a compromise proposal that supporters believe will be better able to withstand a challenge before the World Trade Organization, the Geneva-based group that oversees the rules of world trade.

Before the House vote, Chinese officials in Beijing reiterated that they support exchange rate flexibility but offered no new indications that they plan to accelerate the revaluation of their currency, the yuan.

In June, Beijing promised a more flexible exchange rate but since that time the yuan has risen by only about 2 percent in value against the dollar.

Treasury Secretary Timothy Geithner told Congress earlier this month that the administration stands ready to find a more effective strategy for pressuring China. He said the administration is not only focused on the currency issue but on such topics as rampant copyright piracy of U.S. products and various barriers the Chinese have erected to U.S. goods.

In a statement, the Treasury Department said, "Today's vote clearly shows lawmakers have serious concerns about this issue. The president and Secretary Geithner share those concerns. They have said repeatedly that China needs to allow a significant, sustained appreciation over time."

The administration has not taken a position on whether it will support the House bill. But trade experts said they believed the administration will use its passage as a way to pressure Beijing to accelerate its appreciation efforts.

President Barack Obama raised the currency issue in a meeting with Chinese officials last week in New York. He is expected to pursue the issue in November at the summit of the Group of 20 major economies in South Korea.

Sen. Charles Schumer, D-N.Y., who is pushing a similar China currency bill in the Senate, said after the House vote that he will work to get a Senate vote on his bill during a lame-duck session of Congress after the November elections.

"The Chinese ought to be aware that Congress is serious about confronting their currency manipulation," Schumer said in a statement.

September 17, 2010

With unemployment in the stratosphere and the midterm elections weeks away, politicians naturally want to show voters they’re committed to getting jobs back.

So now they’re getting tough on China.

But it’s a dangerous ploy based on wishful thinking.

Treasury Secretary Tim Geithner told the Senate Banking Committee Thursday the Administration is “examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly.” Translated: We’re on the verge of threatening them with trade sanctions.

Even this didn’t satisfy the Senators. Charles Schumer (D-New York) charged that trade with China “diminishes America, our standard of living here in America, and America as a world power.” Richard Shelby (R-Ala) demanded to know why “the administration protecting China by refusing to designate it as a currency manipulator” – a designation that could lead to trade sanctions.

On Wednesday the U.S. filed a pair of complaints against China with the World Trade Organization, alleging China was unfairly denying American companies access to its market. Meanwhile, several Democrats facing elections in November are introducing measures that would allow companies to pursue sanctions against China for manipulating its currency.

It’s true China has kept the value of its currency artificially low relative to the dollar. If China allowed its currency to rise, Chinese exports would become more expensive to us and our exports would be relatively cheaper to them. This would help shrink the trade imbalance.

It’s also true China has dragged its feet. In June, the U.S. stopped short of branding China a currency manipulator after China promised to reform its ways. But since then China’s currency has risen just 1 percent relative to the dollar.

America’s trade imbalance with China is growing. In the first half of this year, China exported $119 billion more goods and services to us than we did to them – putting the two nations on course to exceed last year’s $227 billion trade gap.

But it’s naive to assume all we have to do to get Chinese to do what we want is to threaten them with tariffs.

First, they might retaliate. Remember, China is the biggest foreign investor in U.S. Treasury securities, with holdings of more than $843 billion. If China were to start selling off large amounts, America’s borrowing costs would soar – and we’d end up worse off.

Second, it’s already costly to China to keep its currency artificially low – requiring that China buy loads of dollars. So why would anyone suppose that making it more expensive for them would bring China around?

China has been willing to bear this huge cost because its export policy doubles as a social policy, designed to maintain order.

Each year, tens of millions of poor Chinese stream into China’s large cities from the countryside in pursuit of better-paying work. If they don’t find it, China risks riots and other upheaval. Massive disorder is one of the greatest risks facing China’s governing elite. That elite would much rather create jobs than allow its currency to rise substantially and thereby risk job shortages at home.

Third, even if China did allow its currency to rise against the dollar, there’s no reason to think this would automatically generate lots more American jobs.

American exports would become cheaper to Chinese consumers. But Japan, Germany, and other major exporters would also demand a piece of the action. Unemployment is high in all developed nations, and every government is under pressure to create more jobs.

Meanwhile, Chinese manufacturers – whose goods would suddenly become more expensive to American consumers – could simply shift their production to other nations with lower currencies. Indeed, as Chinese wages have begun to rise, Chinese manufacturers have already started to shift production to Vietnam, Indonesia, and other low-wage outposts of Southeast Asia.

What worries me most about all this tough talk about China is it diverts attention from the real problem. American isn’t suffering high unemployment because we’re buying too much from China and not selling them enough. Trade with China is a small portion of the U.S. economy.

After three decades of stagnant middle-class wages, during which almost all the economic gains have gone to the top, we’ve finally reached a day of reckoning. The middle class can no longer borrow vast sums by using their homes as ATMs. They can’t squeeze more working hours out of two wage earners. And they have to start saving for retirement.

The central challenge we face isn’t to rebalance trade with China. It’s to rebalance the American economy so its benefits are more widely shared.

September 14, 2010

Below is a recent article, published by a Singaporean tourist to China. His viewpoint about the Chinese is very typical in Singapore. It’s funny to know that Chinese-Singaporeans are originated from different parts of China at one point or another, and yet, they always think that they are the most refined people amongst all the Chinese.

In Singapore, I encounter more ill manners, rude and inconsiderate Singaporeans every day, from all walks of life, than any countries that I’ve travelled to. Despite the fact that their government is spending a million dollars every year to teach them manners, how to be gracious, to respect one another, it’s not really working. Without the cane from the government to whip them in line, the Singaporean’s behavior is no better than any unrefined Chinese that this tourist encountered in the streets of China, or, in any third world countries.

Speaking of loyalty to Singapore, I’m not sure if this guy or most of his fellow countrymen are willing to stay and fight for his country if it’s attacked. Unlike the U.S.A., which embraces anyone who is in despair, hungry, or needs shelter, Singapore only welcomes people with talent and money. Blue collar foreign workers are dispensable, being treated like animals, and rejected by their society. Most foreigners are having problem integrating into Singapore’s society because of discrimination against them. It’s not surprising that a lot of people are also using Singapore for an economic transit point. They will leave if the offers are better elsewhere.

Here is the article (my apologies for the fact that my blogging software could not reproduce the Chinese characters. Fortunately, the writer duplicated everything in English):

My name is Tommy Su Handa and I am a Singaporean teacher working in Shanghai. I have just visited the Expo 2010 earlier today (4 Sept 2010) and it is with a grave heart that I am penning this letter.

I was just an unsuspecting tourist queuing up (I was with a friend, who is a local Shandong Chinese and he is willing to vouch for the authenticity of my report of what has transpired) at the Uzbekistan Pavilion today when a Chinese man about fifty years of age shoved me aside with a rough swing of his hand in the queue and progressed to shove others in front of me and disappeared amidst the crowd – a classic case of queue-cutting.

But the man is too fast for me to intervene. However, his daughter (photo shown below) and wife shortly followed behind and the daughter proceeded to attempt to shove me aside with her hands. I clutched on the railing, blocking her way with my body and said sternly, "Please do not cut queue!", refusing to let her shove me aside like her father.

So the girl (consecutively to be known as ‘G’ in the report below) immediately said, "Why is this fatty [Chinese derogatory term] doing this? i.e. stopping her from cutting queue). Her mother (hereby to be known as ‘M’ in the report as follows) said, "Why is this ‘dead’ [derogatory term of added insult] fatty so serious? Will he die just by letting one person pass?" [hello? This is a family of three, apparently she was unable to count]

Indeed, I will not die letting a few people cut queue and pass by. But growing up in a country that does not have any natural resources has instilled in me an earnest respect for rules and laws and a topic of insult at all so I have no idea why they have started to attack the English standards of my fellow countrymen all of a sudden.

M: Yes! Singaporeans are miserly, stupid and inflexible; can’t even let others cut queue for a bit! You deserve to work hard without earning much. You’re all poor blokes but pretend to be so high and mighty! Singaporean men are not men at all. The whole country is good-for-nothing!

I: How can you insult my country? You started calling me names for no reason other than the fact that I refused to let you cut the queue. I tried to avoid further confrontation by keeping silent but now you insult my country? You were in the wrong first for attempting to cut queue, how can you bring yourself to make such a din now? Are you not embarrassed at the scene you are causing?

How did I refrain from using harsher language than this to protect my country? This is all thanks to my Singaporean upbringing and my personal dedication to my profession as a teacher. I constantly remind myself that I cannot afford to risk compromising my public conduct and decorum.

G: But you scolded China! So why can’t I insult your country?

I: When did I scold China? If I have been unhappy with China, how could I have worked so many years in this country?)

The mother started raising her voice, hoping to get the other Chinese people to support her.

M: Who said you didn’t scold China? We are Chinese, you scold China when you scold us!!! You scolded China!!! WE ARE CHINESE!!!

The girl looked around for support and tried to fuel her mother’s ridiculous accusation and inflame the general public.

G: Yes! What right do Singaporeans have to look down on us? What right do you have to scold us? What right do you have to scold China?

For the life of me, I really did not understand how the matter aggravated to my “looking down” on her and her country! Honestly, I firmly maintain that I have not in any way tried to aggravate the matter with any negative feelings or emotions. I merely wanted them to stop harassing me but they were bent on elevating the quarrel into a public dispute by fabricating lies and inciting anger in the other people in queue. Luckily the general public was very clear-minded and no one helped the unruly women to bully me. If I had said anything inappropriate, I would have been swarmed and probably attacked by the other Chinese – and I would have deserved that. The truth was I didn’t get swarmed nor yelled at by the general public: which was proof that I did not say anything that would undermine Singapore’s friendly ties with the general Chinese populace.

Sensing no support from the others, the mother was getting hysterical for no reason and started physically slapping me at the mid-riff with her fan, saying:

M: Yes! This is China, you are not welcome here! This is our country, roll back to your Singapore!

G: Bye bye, yeah, roll back home!

The mother continued to bodily slap me with her fan, until my local China friend (to be known as ‘F’) spoke up for me,

F: You are not Chinese people anymore! You have rushed at the first opportunity to renounce your Chinese citizenship to become Singaporean ‘flatulence’, what kind of Chinese are you? If you hate Singapore so much, why shamelessly beg for its PR-ship?

My friend really made a good point and a cat immediately caught the unruly woman’s tongue.

M: I, er, we… we’re there only for economic gains! Singaporeans are stupid! It is easy to make money there!

This is where I really feel that I have to speak to the leaders of my country: the women who were scolding me in public have no love for my country but have been approved PR-ship to come in to fleece money from my countrymen. They are here only for economic gains. How did they ever earn PR-ship from such base sentiments?

Sensing the disapproval and despise the other Chinese people were showering on them, the daughter tried to change the topic of attack:

G: (Ya, Singaporeans are so stupid and they still dare to scold China!)

I: When ever did I scold the Chinese people and China? Look at the other Chinese people queuing up now: these are civil people with a sense of decorum. If all the other Chinese people were queue-cutters like you, there would be unimaginable chaos for 13 billion people and the Expo wouldn’t have happened. You have given up your Chinese citizenship and you have no right to bring shame to China from your personal misconduct. China would not want citizens like you, and Singapore would never welcome unruly people like you! You have no proper reason or excuse to continue making this scene, when are you ever going to finish?

And so the mother, knowing that she has neither excuse nor reason, stooped to hurling a series of Chinese obscenities at me. With my last retort questioning her non-existent national alliance and shamelessly untrue pledge of loyalty, I felt I have made my case and I have refused to further respond to her and continued with the queuing despite the continued insults and taunts behind my back. Eventually we reached the entrance of the Uzbekistan Pavilion and I thought I could finally rid myself of this unruly pair behind me.

However, they suddenly proclaimed that they intend to follow us for the whole day in the Expo grounds so that they can continue to scold us! Now this is absolutely unprovoked bullying and an outright case of harassment bordering on felony.

My friend stared at disbelief at the extent of their bullying and said,

F: you can follow us and scold us all you want! We won’t care! If you think your unruly and unreasonable scolding can somehow even restore a tinge of your sense of shame…

I must say that my friend is quite capable of stumping her to silence for a while. But her daughter continued to verbally insult me and my country – and also bodily slap my back with her fan. The pair continued to harass us.

I could take the harassment no more, and so I took out my mobile phone and told them I would take pictures of their bullying and publish it on international social networks. They immediately started slapping my hand and mobile phone to stop me from taking pictures, which was why the photos taken were so grainy. They then retaliated by also taking pictures of us. I started to threaten them that I would call the local police if they do not stop harassing us. That was when they ran away from us.

My friend and I then proceeded to view the exhibits in the Uzbekistan pavilion, but the two women started to follow us, from a distance, with their cameras and persisted with their silent but nonetheless continued harassment from a distance. This went on for the next 30 minutes while we viewed the exhibits until I finally lost my control, walked up to them and yelled at them and their cameras,

I: You cut queues and yet you scold others! Now you continue to bully and harass us! You are ‘dirty’ queue-cutters! You are ‘dirty’ queue-cutters!

I deeply regret the slightly coloured insult I finally flung at them, to which they have no doubt recorded on their camera. But I am no saint, and I dare request to step forward anyone who could have put up with such persistent taunting and bullying, physically and psychologically, of one’s bodily person and country without coming to physical blows and resorting to more colourful vocabulary. The slightly coloured insult was childish, but was the meanest I ever had to be in my entire life in face of such unprovoked unruliness.

It is beyond the shadow of doubt that these two women have lived for some time in Singapore and have unquestionably been reminded and educated that their unruly ways of cutting queues, unprovoked taunting, persistent social bullying and harassment, and last but not least, the daughter’s total inability to communicate in simple English to save her life, are not socially acceptable in the Singapore community. They simply cannot function in Singapore and that has evidently caused them considerable stress.

I know for sure any self respecting Singaporean would openly request anyone who is cutting queue in Singapore to refrain from doing so – and the requests would be made politically correct to address the act of queue-cutting and would in no way be a personal attack. The chidings from my fellow Singaporeans, due to the women’s inability to comprehend simple English, must have definitely been wrongly misconstrued as “looking down on them” and had evoked grudge and malice.

Conveniently but inappropriately, they have chosen to unload all their grudge and malice on unsuspecting and innocent Singaporean tourists at the Expo grounds such as I. Their target was not specifically ME, but just their own twisted perception of Singaporeans! As a highly educated individual, how could I have not understood that? That was probably why I haven't punched the lights out of them for such barbaric bullying.

But I do worry: do the “Foreign Talents” recruited to my beloved Singapore really understand the basic common civility to integrate into the nation’s communities? If they harbour such grudge and malice to Singaporean citizens, why do they lust after our citizenship? What can they contribute positively to our nation if they pose such potentially hazardous social anomaly? I most certainly cannot imagine such unruly people to love and contribute to Singapore productively – and I do not see unruliness as a talent much needed by the nation. Moreover, I was shocked and aghast at the blatant lack of loyalty these new PRs have for my country.

Please understand that my intention for reporting this isolated case is by no means to cause a rift between China and Singapore. I respect China, have married a local Shanghainese woman, and have now a nine-month-old baby boy, testament of my love for this second home of mine. The greater general populace of the China has always warmed me on countless occasions of their willingness to work unconditionally and sacrifice unquestioningly to noble causes.

Here is one response to the above online letter:

Chinese are a whole lot of pragmatic, practical people. They are a hardy lot and can be found all over the world where there's money to be made with some of them even settling down for long term even in Africa and South America and overcome initial difficulties of strange culture and language. These type of people do contribute to the local economy as they add to the local economic statistics.

Today's Chinese are different from the past. They have a choice now, that is to stay or to leave their adopted countries. Spurred on by their booming economic opportunities in their motherland and sense of loyalty and pride, these first generation of emigrants do want to go back and contribute.

Although millions of young Chinese people dream of studying in America, the ones who actually get the opportunity don't necessarily want to stay in America after they graduate. In late 2008, the Chinese government launched an aggressive campaign to lure them back and is spending millions to entice accomplished investors, bankers, researchers and engineers to come home.

In the last two decades, an estimated 50,000 immigrants left the United States and returned to India and China. In the next five years, a projected100,000 more will make the return trip. A trickle is turning into a flood. Most of the present returnees are young, in their early 30s and nearly 90 percent had master’s or doctorate degrees.

Over back in Singapore, our government does not grant PRs or citizenship seemingly anyhow to applicants from China or to many other countries for this matter. Most of the ethnic Chinese PRs in Singapore hail from Malaysia. Many of them progress on to take up citizenship becoming first generation of Singaporeans in their family line.

Over the 10-year period to present, the number of Malaysia-born Chinese in Singapore (permanent residents and first generation Singapore citizens from Malaysia, combined) went up by 81,000, while that of China-born Chinese went up by just 13,000.

Hopefully, the new data may help correct a misperception on the ground.This whole idea that we are being overwhelmed by mainland Chinese has no basis. The numbers should tell us that many from China are here only as foreign workers and, as the Prime Minister has said, we have to distinguish these workers from new immigrants.

There are good and bad from each country. In my work and travels, most of these foreigners I have to deal with in here or overseas, come across to me as intelligent, well mannered and polite. Of course, there is always the minority. However, I must add that we ourselves are not saints either. C'est la vie!!

In addition to alleviating poverty and having the second largest group of billionaires in the world, China's government is the US' banker. I wrote a blog post 3 years ago, "Uncle Sam, Your Banker Will See You Now." The US goes further into debt to China with each passing month with a combination of trade deficits and money borrowed to finance the US government itself. While the Chinese government had a sovereign wealth fund of $332 billion at the end of 2009, the US has $11 trillion worth of debt. The Chinese government recently launched a $586 billion infrastructure initiative. The US by contrast has less than a tenth of that set aside for infrastructure development. China's plans for high speed rail dwarf America's efforts. While the US is having a Great Recession with abysmal growth rates and lousy job creation, China's economy is surging ahead with a growth rate of 10% per year.

"If charity cost nothing, the world would be full of philanthropists," Jewish proverb.

A brouhaha has been brewing in China amid rampant speculation that Chinese billionaires are dodging invitations to a banquet hosted by Bill Gates and Warren Buffett later this month… because they are nervous about being hit up for donations.

"Rich Chinese reluctant to meet with US barons. Guess suspect dinner invitations come with high price tag attached," one local headline blared.

Gates and Buffett, two of the richest men in the world, are heading to China later this month in an attempt to get the country's mega rich involved with their Giving Pledge. The initiative, which specifies that donors give at least half of their fortunes to charity, has had great success back home, with some 40 billionaires signing off and an estimated $600 billion likely to be raised.

According to this year's Forbes rich list, China has 117 billionaires, the second highest in the world after the U.S. Fifty of the country's super-rich were invited to the banquet.

"After the invitations were sent out, a number of people called to query if they would be asked to donate at the function. So far, a small group has turned down the invitations," said Ye Lei, the head of the foundation in China was quoted as saying.

Philanthropy is a relatively new concept to China, a country whose wealth is newly accumulated and whose social security system is stretched thin.

"Compared to the U.S., some wealthy people in China seem more concerned about their personal and children's well-being, partly because people tend to worry more about their own education, pensions and medical care," Jin Jinping, director of the center for nonprofit organizations law at Peking University, told the China Daily.

Among those who did accept the invitation, Zhang Zin, CEO and co-founder of real estate behemoth SOHO, Wang Chuanfu, the head of car and battery maker BYD and the richest man in China, and Chen Guangbiao, a Chinese entrepreneur well known for his generosity.

On his website, Chen wrote an open letter to Gates and Buffett, saying that he was "greatly moved" by the duo's commitment to charity and that less than 1 percent of China's wealthy elite give part of their fortune away and that. He also pledged to donate his entire wealth, estimated at $735 million, to charity when he dies.

September 09, 2010

"If charity cost nothing, the world would be full of philanthropists," Jewish proverb.

A brouhaha has been brewing in China amid rampant speculation that Chinese billionaires are dodging invitations to a banquet hosted by Bill Gates and Warren Buffett later this month… because they are nervous about being hit up for donations.

"Rich Chinese reluctant to meet with US barons. Guess suspect dinner invitations come with high price tag attached," one local headline blared.

Gates and Buffett, two of the richest men in the world, are heading to China later this month in an attempt to get the country's mega rich involved with their Giving Pledge. The initiative, which specifies that donors give at least half of their fortunes to charity, has had great success back home, with some 40 billionaires signing off and an estimated $600 billion likely to be raised.

According to this year's Forbes rich list, China has 117 billionaires, the second highest in the world after the U.S. Fifty of the country's super-rich were invited to the banquet.

"After the invitations were sent out, a number of people called to query if they would be asked to donate at the function. So far, a small group has turned down the invitations," said Ye Lei, the head of the foundation in China was quoted as saying.

Philanthropy is a relatively new concept to China, a country whose wealth is newly accumulated and whose social security system is stretched thin.

"Compared to the U.S., some wealthy people in China seem more concerned about their personal and children's well-being, partly because people tend to worry more about their own education, pensions and medical care," Jin Jinping, director of the center for nonprofit organizations law at Peking University, told the China Daily.

Among those who did accept the invitation, Zhang Zin, CEO and co-founder of real estate behemoth SOHO, Wang Chuanfu, the head of car and battery maker BYD and the richest man in China, and Chen Guangbiao, a Chinese entrepreneur well known for his generosity.

On his website, Chen wrote an open letter to Gates and Buffett, saying that he was "greatly moved" by the duo's commitment to charity and that less than 1 percent of China's wealthy elite give part of their fortune away and that. He also pledged to donate his entire wealth, estimated at $735 million, to charity when he dies.

August 30, 2010

By MICHAEL WINES

BEIJING — During its decades of rapid growth, China thrived by allowing once-suppressed private entrepreneurs to prosper, often at the expense of the old, inefficient state sector of the economy.

Now, whether in the coal-rich regions of Shanxi Province, the steel mills of the northern industrial heartland, or the airlines flying overhead, it is often China’s state-run companies that are on the march.

As the Chinese government has grown richer — and more worried about sustaining its high-octane growth — it has pumped public money into companies that it expects to upgrade the industrial base and employ more people. The beneficiaries are state-owned interests that many analysts had assumed would gradually wither away in the face of private-sector competition.

New data from the World Bank show that the proportion of industrial production by companies controlled by the Chinese state edged up last year, checking a slow but seemingly inevitable eclipse. Moreover, investment by state-controlled companies skyrocketed, driven by hundreds of billions of dollars of government spending and state bank lending to combat the global financial crisis.

They join a string of other signals that are fueling discussion among analysts about whether China, which calls itself socialist but is often thought of in the West as brutally capitalist, is in fact seeking to enhance government control over some parts of the economy.

The distinction may matter more today than it once did. China surpassed Japan to become the world’s second-largest economy this year, and its state-directed development model is enormously appealing to poor countries. Even in the West, many admire China’s ability to build a first-world infrastructure and transform its cities into showpieces.

Once eager to learn from the United States, China’s leaders during the financial crisis have reaffirmed their faith in their own more statist approach to economic management, in which private capitalism plays only a supporting role.

“The socialist system’s advantages,” Prime Minister Wen Jiabao said in a March address, “enable us to make decisions efficiently, organize effectively and concentrate resources to accomplish large undertakings.”

State vs. Private

The issue of state versus private control is a slippery one in China. After decades of economic reform, many big state-owned companies face real competition and are expected to operate profitably. The biggest private companies often get their financing from state banks, coordinate their investments with the government and seat their chief executives on government advisory panels.

Chinese leaders also no longer publicly emphasize sharp ideological distinctions about ownership. But they never relaxed state control over some sectors considered strategically vital, including finance, defense, energy, telecommunications, railways and ports.

Mr. Wen and President Hu Jintao are also seen as less attuned to the interests of foreign investors and China’s own private sector than the earlier generation of leaders who pioneered economic reforms. They prefer to enhance the clout and economic reach of state-backed companies at the top of the pecking order.

“China’s always had a major industrial policy. But for a space of a few years, it looked like China was turning away from an active and interventionist industrial policy in favor of a more hands-off approach,” Victor Shih, a Northwestern University political scientist, said in a recent telephone interview.

Mr. Shih, among others, now believes that the 1980s reforms that unleashed China’s private sector and the 1990s reforms that dismantled great sections of the state-run sector are being partly undone.

“The problem is that the reforms of the first 20 years, from 1978 to the end of the ’90s, actually did not touch on the power of the government,” said Yao Yang, a Peking University professor who heads the China Center for Economic Research. “So after the other reforms were finished, you actually find the government is expanding, because there is no check and balance on its power.”

Divining Government’s Role

There are no comprehensive statistics to catalog the government’s influence over the economy. So the shift is partly inferred from coarse measures like the share of financing in the economy provided by state banks, which rose sharply during the financial crisis, or the list of the 100 largest publicly listed Chinese companies, all but one of which are majority state owned.

The statistic showing an uptick in the share of industrial production attributable to the state sector is regarded by some analysts as a blip rather than the start of a trend. The World Bank’s senior economist in Beijing, Louis Kuijs, said the state sector’s unusually rapid growth will most likely moderate with the ending of the government’s stimulus spending.

“As the growth process normalizes again, the traditional trend toward a declining SOE share will take over again,” he wrote in an e-mail message, using the shorthand for state-owned enterprise. “I don’t think that the senior leaders had a strategy of reversing this trend.”

But others argue that officials had always intended to create a vibrant state sector that would tower above the private sector in important industries, even as they sold off or shut down money-losing state enterprises that drained capital from the government budget and banking system.

Recent alarm over the expanding role of the state, said Arthur Kroeber of Dragonomics, an economic forecasting firm based in Beijing, is mostly “perception catching up with reality.”

In some ways, the differences in this debate are small. Everyone agrees that China runs a bifurcated economy: at one level, a robust and competitive private sector dominates industries like factory-assembled exports, clothing and food. And at higher levels like finance, communications, transportation, mining and metals — the so-called commanding heights — the central government claims majority ownership and a measure of management control.

Yet the two camps’ view of China’s future are markedly different. Those who see little evidence of an expanding state sector generally believe that China has a decade or more of robust growth awaiting it before its economy matures. Theirs is a Goldilocks view of state intervention — not too much or too little, but just enough to push a developing economy toward prosperity.

The skeptics have a darker view: they believe distortions and waste, in no small part due to government meddling, have resulted in gross misallocation of capital and will end up pushing growth rates down well before 2020. What drives their pessimism, the skeptics say, is that China, like Japan a generation ago, has too much confidence in a top-down economic strategy that defies conventional Western theory.

The skeptics also point to what they say is the growing political and financial influence of China’s state-owned giants — 129 huge conglomerates that answer directly to the central government, and thousands of smaller ones run by the provinces and cities.

While no public breakdown exists, most experts say the vast bulk of the 4 trillion renminbi ($588 billion) stimulus package that China pumped out for new highways, railroads and other big projects went to state-owned companies. Some of the largest companies used the flood of money to strengthen their dominance in their current markets or to enter new ones.

In the last year or so, many of the 129 central government companies have moved forcefully into China’s real-estate industry, with hundreds of billions of dollars in construction projects and land deals. State-owned steel giants have cut deals to buy out more profitable and often more efficient private competitors. A host of government conglomerates have snapped up coal mining companies in Shanxi Province.

“In 2009, there was a huge expansion of the government role in the corporate sector,” Huang Yasheng, a leading analyst of China-style capitalism at the Massachusetts Institute of Technology, said in a telephone interview. “They’re producing yogurt. They’re into real estate. Some of the upstream state-owned enterprises are now expanding downstream, organizing themselves as vertical units. They’re just operating on a much larger scale.”

Local Interests

At the local level, governments set up 8,000 state-owned investment companies in 2009 alone to channel government dollars into business and industrial ventures, Mr. Huang said. One example suffices: a private Chinese automaker, Zhejiang Geely Holding Group, made worldwide headlines in March when it agreed to buy Sweden’s Volvo marque from Ford. Much of the $1.5 billion purchase price came not from Geely’s relatively modest profits, but from local governments in northeast China and the Shanghai area.

The reasons for the state’s push for greater involvement in business vary. State control of energy supplies is crucial to China’s growth, and the Shanxi coal takeovers will increase production, guarantee fuel to some state-owned utilities and give Beijing new power to control coal prices. State mining companies also argue that they have a superior safety record to their accident-prone private competitors.

But in other areas the state looks more mercenary.

Take telecommunications. Upon joining the World Trade Organization, China committed itself to opening its communications market to foreign joint ventures for local and international phone service, e-mail, paging and other businesses. But after eight years, no licenses have been granted — largely, the United States says, because capital requirements, regulatory hurdles and other barriers have made such ventures impractical. Today, basic telecommunications in China are booming, and are virtually 100 percent state-controlled.

Take the passenger airline industry. Six years ago, the central government invited private investors to enter the business. By 2006, eight private carriers had sprung up to challenge the three state-controlled majors, Air China, China Southern and China Eastern.

The state airlines immediately began a price war. The state-owned monopoly that provided jet fuel refused to service private carriers on the same generous terms given the big three. China’s only computerized reservation system — currently one-third owned by the three state airlines — refused to book flights for private competitors. And when mismanagement and the 2008 economic crisis drove the three majors into financial straits, the central government bought stock to bail them out: about $1 billion for China Eastern; $430 million for China Southern; $220 million for Air China.

One private passenger carrier that remains is Spring Airlines, a tenacious startup run by a founder so frugal that he shares a 100-square-foot office with his chief executive and takes the subway to business meetings.

That founder, Wang Zhenghua, survived in part by building his own computer reservation system. He canceled a planned interview. But in Chinese news reports, he was caustic about the state subsidies given his competitors. “Now with the injection of 10 billion yuan” for China Eastern and China Southern, “everything is in chaos,” he told Biz Review, a Chinese magazine.

China’s private entrepreneurs have a catchphrase for such maneuvers: “guo jin, min tui,” or “the state advances, the private sector retreats.”

State-owned enterprises in China have taken the best of the economy for themselves, “leaving the private sector drinking the soup while the state enterprises are eating the meat,” Cai Hua, the vice director of a chamber-of-commerce-style organization in Zhejiang Province, said in an interview.

First in Line

Mr. Cai says he believes that China needs government-run industries to compete globally and manage the country’s domestic development. But locally, he said, their advantages — being first in line for financing by state banks, first in line for state bailouts when they get in trouble, first in line for the stimulus gusher — have created a “profound inequality” with private competitors.

Some analysts argue that the state-owned conglomerates, built with state money and favors into global competitors, have now become political power centers in their own right, able to fend off even Beijing’s efforts to rein them in.

Of the 129 major state enterprises, more than half the chairmen and chairwomen and more than one-third of the chief executive officers were appointed by the central organization department of the Communist Party. A score or more serve on the party’s Central Committee, which elects the ruling Politburo. They control not just the lifeblood of China’s economy, but a corporate patronage system that dispenses top-paying executive jobs to relatives of the party’s leading lights.

China’s leaders have sought occasionally in the past year to curb speculative excesses by state-controlled businesses in real estate, lending and other areas. In May the State Council, a top-level policy body sometimes likened to the cabinet in the United States, issued orders to give private companies a better shot at government contracts — for roads and bridges, finance and even military work — that now go almost exclusively to state-owned companies. Virtually the same rules were issued five years ago, to little effect.

Yet it is hard to argue with success, other economists say, and China’s success speaks well of its top-down strategy. Asian powerhouses like South Korea and Japan built their modern economies with strong state help. Many economists agree that shrewd state management can be better than market forces in getting a developing nation on its feet.

Experts on both sides of the debate have but two questions. One is how much longer state control of vast areas of the economy will generate that growth.

The other is whether, should that strategy stop working, China will be able to change it.

August 16, 2010

It’s official. China is now #2. Its economy (measured in nominal GDP for the second quarter) is now bigger than Japan’s (according to numbers released today from the Japanese government). And at the rate it’s growing, China could be the world’s biggest economy in a little more than a decade (Goldman Sachs says by 2027, PricewaterhouseCoopers says by 2020).

Don’t be misled by these numbers. The important thing isn’t China’s ranking, nor the total value of China’s production, nor even the extraordinary speed by which China has reached #2.

What’s most important is the share China’s production received and consumed by the Chinese themselves. The problem is it continues to drop.

China has dozens of billionaires but the vast majority of the Chinese are still extremely poor. The typical Chinese lives off the equivalent of about $3,600 a year. That puts him behind workers in 126 other countries. (The typical Japanese earns the equivalent of about $39,000; the typical American, $46,400.)

Yes, Chinese employers are starting to respond to new-found demands of Chinese workers for higher wages. But Chinese wages are so meager relative to China’s productive capacity that it would take a tsunami of labor agitation to push pay up to where it should be.

China is now the world’s largest market for everything from cars to cell phones – but that’s not because these items are within easy reach of the average Chinese. It’s because, out of 1.3 billion people, a couple of hundred million can save enough to buy them.

If the wages and purchasing power of Chinese households continues to rise more slowly than China’s capacity to produce goods and services — more slowly than China’s corporate profits and the government’s share of national income — we’re all in trouble.

Think of China as a giant production machine that’s growing 10 percent a year (this year, somewhat less). The machine sucks in more and more raw materials and components from rest of world – it’s now the world’s #1 buyer of iron ore and copper, and close to the #1 importer of crude oil – and spews out a growing mountain of stuff, along with huge environmental problems.

But because the Chinese consume a smaller and smaller proportion of this stuff, it has to be exported to consumers elsewhere (Europe, North America, Japan) to keep the Chinese working. Much of the money China earns by selling it around the world is reinvested in factories, roads, trains, and power plants that enlarge China’s capacity to produce far more. Another big portion is lent to or invested in the rest of the world (helping to finance America’s budget deficit at very low cost).

But this can’t go on. China’s workers won’t allow it. Workers in other nations who are losing their jobs won’t allow it, either.

The answer is not simply more labor agitation in China or an upward revaluation of China’s currency relative to the dollar. The problem is bigger. All over the world, we’re witnessing a growing gap between production and consumption, while the environment continues to degrade. The Chinese machine is fast heading for a breakdown only because it’s growing fastest.

August 07, 2010

Come on: is the West really in such decline? Yes, we can sit here on our island continent and gloom about the rise of China, as our elite now like to do. Or we can go out into the world and start competing like the Europeans. For here's a strange fact: since 2003, it's not China but Germany, that colossus of European socialism, that has either led the world in export sales or at least been tied for first. Even as we in the United States fall more deeply into the clutches of our foreign creditors—China foremost among them—Germany has somehow managed to create a high-wage, unionized economy without shipping all its jobs abroad or creating a massive trade deficit, or any trade deficit at all. Sure, China just pulled slightly ahead of Germany, but that's mostly because the euro has soared, making German goods even more expensive, and world trade has slumped. Meanwhile, the dollar is dropping, and we still can't compete with either nation. And even as the Germans outsell the United States, they manage to take six weeks of vacation every year. They're beating us with one hand tied behind their back.

Why is Germany beating us? It's tempting to say it's because we beat them. After all, we helped put a major component of the German model in place, which is the role that German workers have in running their firms. After World War II, we had a problem: Who would keep watch over all the German businessmen who had supported Hitler? We couldn't put them all in jail. Back in that New Deal era, we and our allies were quite willing to put workers on the boards to keep an eye on businessmen. Still, the idea of works councils was not invented by Americans. In fact, it had its origins in Weimar Germany. And now Germany is the country, out of all countries, including Communist China, in which workers have the greatest amount of control over (dare I say it) the means of production.

Okay, it's not that much control. But it's enough to make the German system a rival form of capitalism. And because German workers are at the table when the big decisions are made, and elect people who still watch and sometimes check the businessmen, they have been able to hang on to their manufacturing sector. They have kept a tool-making, engineering culture, which our own entrepreneurs, dreamily buried in their Ayn Rand novels, have gutted. And now, thanks in large part to these smart structural decisions, Germany is not only competitive, it's rich. Although it's unlikely that even the most liberal of American politicians would ever use a phrase like "worker control"—much less describe people who work as "workers"—it might still be worth at least considering what would be involved in emulating the German model.

Let me here cart out the big three building blocks of German social democracy: the works council, the co-determined board, and Germany's regional wage-setting institutions. If I were teaching a class, I'd put these up on the blackboard and talk about them at the beginning of every class. "What do I mean by the German model? I'd like to see hands." No one knows. So I give the answer: "It's the works council, the co-determined board, and the wagesetting institutions."

Everyone in class groans. Whatever does that mean?

Well, the works council is simple in theory, though hard for an American to take in. Let's say you work at the Barnes & Noble at the corner of Clybourn and Webster avenues in Chicago. You may be just a clerk, no degree. (In Germany, you'd have a certificate in bookstore clerking, but in the United States there's no need.) Still, you could be elected to a works council at this store. That means you help manage the place. You help decide when to open and close the store. You help decide who gets what shift. On layoffs and other issues, the employer must reach an agreement with the works council. So you may ultimately decide whether Ms. X is to be laid off or fired. How did you get into this kind of "management"? Barnes & Noble had no say in it. You were elected by your fellow workers. You went out and campaigned: "Elect me."

The result is that there are thousands of clerks and engineers in Germany who now are (or a few years ago were) elected officials, with real power over other people. They are responsible for other people. They are responsible for running the firm. They make up a powerful leadership class that represents the kind of people—low-income, low-education—who don't have much of a voice in the affairs of other industrialized countries.

If that's a works council, what's a co-determined board? These apply mostly to the largest companies, those with more than 2,000 employees. We now leave behind the bookstore at Clybourn and Webster and try to imagine all of Barnes & Noble, the whole company. Way at the top, in the boardroom, where you expect to bump into Robert Rubin, the clerks get to elect half the board: not a fifth, not a third, but half—the same number of voting directors that the hedge funds get to elect.

Of course there's a catch! Under German law, if the directors elected by the clerks and the directors elected by the shareholders are deadlocked, then the chairman can break the tie. And who picks the chairman? Ultimately, just the shareholders. So capitalism wins by one vote, provided the stockholders, the bankers, and the kids from Goldman Sachs all vote in a single bloc. But the clerks still have a lot of clout. If the shareholders are divided on whether "A" or "B" should be the next CEO, the clerks get to pick the king. "A" is CEO but he owes his job to the clerks. By the way, the clerks have all this power without owning any shares! In this stakeholder model, they need only act on their interests as "the workers."

With works councils and co-determination, everything in the firm gets discussed, rather than the CEO going to the mountaintop without ever seeing a worker and deciding to pull the plug. "Wait," people say to me. "You mean co-determination keeps jobs from going abroad?" No, they can't stop a sale. They can't stop outsourcing. But they can cut deals. "Conditions—that is my motto," is how one worker-director put it in an issue of my favorite German magazine, Mitbestimmung. In the United States, people don't even know the plant is closing until management calls a meeting and ushers everyone out under armed guard. But in a German firm, the workers are Cato-like guardians, able to look at all of the financial records and planning documents as if they owned the place. If a company wants to start a plant abroad, the workers can pressure the board to plow some money back into a German plant or provide a ten-year employment guarantee. Or they can fight to get a better owner. It's not just the arguing: it's the fact that they can be in the boardroom watching, or in the back room rifling through the files. Doesn't your own behavior change when you think Cato is watching you? Well, it's true for managers too. That's why there is still a manufacturing sector in Germany.

Given the influence of the works council and a co-determined board, what remains for Germany's many powerful unions? They do the bargaining over wages and pensions but at a macro level, with a federation of all the big bookstores, not just Barnes & Noble but Borders as well. This is the German model of regional or multi-employer bargaining. We negotiated wages this way in the United States in the 1940s and 1950s, but no more. I doubt many Americans under forty even know what I mean by regional wage-setting institutions, and yet they are probably the single most important way in which Germany is "socialist."

This system is much in decline even in Germany, but it still has a huge egalitarian effect. The goal, never quite reached, is that every Barnes & Noble, every Borders, everywhere in the covered area, pays the same wage for the same type of work. Wages are not set person by person or shop by shop. They're the same, everywhere, as much as possible. The result, from an American perspective, is a shocking transparency: in Germany the ideal is that everyone knows what everyone else is making. By contrast, who knows what Barnes & Noble pays in Chicago, or Borders in Joliet? In the German system, people can find out what other people are getting, and their unions in turn can demand the same.

The private export sector is the most unionized part of the German economy (even more than the public sector). And it is understood to be the vanguard, the industry on the front lines of the global economy. So if the engineers at ThyssenKrupp get a 3 percent raise, then certainly the clerks should get a 3 percent raise. Soon everyone in Germany is getting 3 percent! In a complicated and limited way, the whole country can have a voice, if not a vote, in what takehome pay they receive. Unification with low-wage East Germany has made this leveling tougher, but people in Germany can still actually talk about "wage policy" and "wage objectives." There's a national conversation, unknown here, as to how much everybody should get.

All my life as a labor lawyer I have read the same thing in The Economist, about the United States and its wonderful labor-market flexibility. What they mean is: Unlike the Germans, U.S. working people are completely powerless. But it's precisely because of our labor-market flexibility that we can't compete. Our workers have been flexed right out of their high-wage, high-skill jobs and into low-wage, low-skill jobs. That's bad for the workers, of course, and it's also bad for the economy. The German model—with worker control built into the very structure of the firm—keeps bosses and workers in groups, rubbing elbows with each other, and sometimes just elbowing. It creates a group interaction that over time builds and protects what economists like to call human capital, especially in engineering and quality control. It's precisely this kind of valuable capital that our atomizing "flexible" labor markets are so good at breaking up and dispersing.

Yes, there's much to like about the U.S. model. In global competition, the United States has almost every comparative advantage over Germany. We spend vastly more on basic research than the Germans do. We have much more land, more labor, more capital, much higher levels of formal education. But with our flexible labor markets we cannot develop human capital or knowledge to wean ourselves away from turning out crap and leaving the high-skill manufacturing to the Europeans. The one great comparative advantage of Germany is that it is a social democracy. Germany has its problems, and I take them seriously. But I'm also sure that German companies will lead the next industrial revolution, the "green" one, while we in the United States will merely watch.

If you ask most Democrats and their think-tank minions how to help our powerless middle class, they have no answer except to send even more of them to college, where with luck they get out being only $50,000 or so in debt. As for the high school graduates who make up the base of the party, we effectively tell them: You're finished. There's no role for high school graduates in our version of the global economy. In Germany, these same high school graduates could be sitting on a corporate board. Skeptical readers will say: Oh, but that's Europe, it's socialism, something like that is not possible here. I think it's quite possible.

I now have stopped underlining and re-reading Wolfgang Streeck's great 1996 essay, "German Capitalism: Does It Exist? Can It Survive?" Still, I recall his central, disheartening point that the German model, with its works councils and the rest, was simply too hard to replicate in other countries. In the end, global capitalism would force Germany itself into our simpler, top-down Anglo-American model.

But it turns out, at least in the European Union, that other countries are now keen on experimenting with co-determination and works councils. "Co-determination is our biggest export," a former official in the German government told me. As it spreads through Europe, we may come to understand the German model as not just a rival but a better form of capitalism. It only takes a change in law. Maybe we'll decide one day, simply out of patriotism, that we have no other choice.

Is it likely? No. Is it possible? Yes. At any rate, it's just nonsense that "Europe's way" and "our way" can never be the same. We may have messed up our part in globalization, but we still have time to fix things. It may be even easier in this wired world to exercise our greatest privilege as Americans—to astonish ourselves by being American and making a European idea of democracy our own.

Thomas Geoghegan, a lawyer in Chicago, is the author of many books, including Which Side Are You On? and Were You Born on the Wrong Continent? which will be published this summer by New Press. His most recent article for Harper's Magazine, "Infinite Debt," appeared in the April 2009 issue.

August 04, 2010

While the US economy stagnates, China is moving ahead. Why? Because the Chinese ruling elite sees a sector it would like to achieve dominance in like, for instance, green energy, and the government sets that as a priority and orders Chinese industry to go full speed ahead in that sector providing investment resources if necessary. In the US Senators argue endlessly over whether any initiative is socialistic or not or whether it will add to the national debt. All the while China is collecting interest from us on our national debt to them. The Chinese ruling elite are no dummies. They know which areas they want to invest in, which areas they want to grow their economy in, and they go ahead and do it while in the US, lobbyists argue endlessly in favor of established economic interests. Rather than building infrastructure, they let it rot because repairing it would require socialism which is just another name for government investment. Lord knows the private sector isn't interested - not profitable enough.

The US military-industrial-intelligence complex is out of control with money being spent like it was water and added to the national debt while Senators chintz on unemployment benefits. In a recent Washington Post series, Top Secret America, the point was made that the intelligence operation is so big and disfunctional that no one can figure out what's going on with it or whether it is actually protecting American citizens. Meanwhile, China pursues peaceful policies recommended by Sun Tzu in the Art of War. He recommends achieving your goals without firing a shot if possible. The Chinese are making deals all over the world for resource extraction while spending hardly at all on their military. The US borrows from them to spend on its military and fight wars which are not bringing about any more favorable deals on resource extraction than what the Chinese are getting for far less than what the US is spending. And while the US is creating enemies by killing many more civilians than terrorists, China is creating friends through peaceful trade deals and doesn't seem to be worrying too much about terrorists.

There is $100 billion in evaded US taxes parked offshore out of reach of the tax collector while teachers, firemen and policemen are being laid off for lack of funds. Some mayor in a poverty stricken town like Bell, CA pays himself $800,000. a year and then abruptly quits when he is found out. But he can look forward to a pension of $700,000. a year for the rest of his life. In China he would be taken out and shot. In the US there is a lot of handwringing over the fact that a bunch of different California cities are going to have to contribute to his pension, not just the citizens of Bell. First the mayor raised taxes on his poverty stricken residents, laid off government workers and then voted himself, the Chief of police and the city council members huge pay raises. The police chief was getting over $400,000. and he had only been on the job a year! Of course he will also get a huge pension for life. The City Council members were each getting around $100,000. for part time jobs. The amazing thing is that it is not clear whether anything can be done about the pensions other than to pay them.

In the US every initiative, every proposal becomes a politcal football with ideological prejudices of the right and left becoming the dominant factors. In China they calmly and cooly assess what is in their best interests after consulting the most intelligent experts on the subject and then forge ahead. They don't have a bunch of procedural rules which prevent them from getting anything done like they do in the US Senate. Obstructionism is an oxymoron in China while in the US it's the name of the game.

(TibetanReview.net, Aug03, 2010) After overtaking Britain and France in 2005 and Germany in 2007, China has now dislodged Japan to become the world’s second largest economy. The claim was made by Yi Gang, China's chief currency regulator, in remarks published on Jul 30 by China’s state media.

"China, in fact, is now already the world's second-largest economy," he was quoted as saying in an interview with China Reform magazine posted on the website (www.safe.gov.cn) of his agency, the State Administration of Foreign Exchange.

According to projections by the World Bank, Goldman Sachs and others, China is on course to overtake the United States and vault into the No.1 spot sometime around 2025.

With their emphasis on capital accumulation by means of sovereign wealth funds which allow them to invest worldwide in the natural resources they will need in the 21st century and their relative lack of investment in a military-industrial complex, China has turned the page on capitalism opening a new chapter in which the government is actively involved in the economy through an industrial policy and a poltical system that involves relatively little nail biting, hand wringing and argumentation by clueless, ignorant people. In addition they have become Uncle Sam's banker. Simply put, they're eating the US' lunch.

July 13, 2010

How to Make an American Job Before It's Too Late: Andy Grove

Recently an acquaintance at the next table in a Palo Alto, California, restaurant introduced me to his companions: three young venture capitalists from China. They explained, with visible excitement, that they were touring promising companies in Silicon Valley. I’ve lived in the Valley a long time, and usually when I see how the region has become such a draw for global investments, I feel a little proud.

Not this time. I left the restaurant unsettled. Something didn’t add up. Bay Area unemployment is even higher than the 9.7 percent national average. Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late -- unless you are counting Asia, where American technology companies have been adding jobs like mad for years.

The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.

Mythical Moment

Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

Scaling used to work well in Silicon Valley. Entrepreneurs came up with an invention. Investors gave them money to build their business. If the founders and their investors were lucky, the company grew and had an initial public offering, which brought in money that financed further growth.

Intel Startup

I am fortunate to have lived through one such example. In 1968, two well-known technologists and their investor friends anted up $3 million to start Intel Corp., making memory chips for the computer industry. From the beginning, we had to figure out how to make our chips in volume. We had to build factories; hire, train and retain employees; establish relationships with suppliers; and sort out a million other things before Intel could become a billion-dollar company. Three years later, it went public and grew to be one of the biggest technology companies in the world. By 1980, which was 10 years after our IPO, about 13,000 people worked for Intel in the U.S.

Not far from Intel’s headquarters in Santa Clara, California, other companies developed. Tandem Computers Inc. went through a similar process, then Sun Microsystems Inc., Cisco Systems Inc., Netscape Communications Corp., and on and on. Some companies died along the way or were absorbed by others, but each survivor added to the complex technological ecosystem that came to be called Silicon Valley.

As time passed, wages and health-care costs rose in the U.S., and China opened up. American companies discovered they could have their manufacturing and even their engineering done cheaper overseas. When they did so, margins improved. Management was happy, and so were stockholders. Growth continued, even more profitably. But the job machine began sputtering.

U.S. Versus China

Today, manufacturing employment in the U.S. computer industry is about 166,000 -- lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers -- factory employees, engineers and managers.

The largest of these companies is Hon Hai Precision Industry Co., also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62 billion, larger than Apple Inc., Microsoft Corp., Dell Inc. or Intel. Foxconn employs more than 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co., Intel and Sony Corp.

10-to-1 Ratio

Until a recent spate of suicides at Foxconn’s giant factory complex in Shenzhen, China, few Americans had heard of the company. But most know the products it makes: computers for Dell and HP, Nokia Oyj cell phones, Microsoft Xbox 360 consoles, Intel motherboards, and countless other familiar gadgets. Some 250,000 Foxconn employees in southern China produce Apple’s products. Apple, meanwhile, has about 25,000 employees in the U.S. -- that means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods and iPhones. The same roughly 10-to-1 relationship holds for Dell, disk-drive maker Seagate Technology, and other U.S. tech companies.

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work -- and much of the profits -- remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?

Since the early days of Silicon Valley, the money invested in companies has increased dramatically, only to produce fewer jobs. Simply put, the U.S. has become wildly inefficient at creating American tech jobs. We may be less aware of this growing inefficiency, however, because our history of creating jobs over the past few decades has been spectacular -- masking our greater and greater spending to create each position.

Tragic Mistake

Should we wait and not act on the basis of early indicators? I think that would be a tragic mistake because the only chance we have to reverse the deterioration is if we act early and decisively.

Already the decline has been marked. It may be measured by way of a simple calculation: an estimate of the employment cost- effectiveness of a company. First, take the initial investment plus the investment during a company’s IPO. Then divide that by the number of employees working in that company 10 years later. For Intel, this worked out to be about $650 per job -- $3,600 adjusted for inflation. National Semiconductor Corp., another chip company, was even more efficient at $2,000 per job.

Making the same calculations for a number of Silicon Valley companies shows that the cost of creating U.S. jobs grew from a few thousand dollars per position in the early years to $100,000 today. The obvious reason: Companies simply hire fewer employees as more work is done by outside contractors, usually in Asia.

Alternative Energy

The job-machine breakdown isn’t just in computers. Consider alternative energy, an emerging industry where there is plenty of innovation. Photovoltaics, for example, are a U.S. invention. Their use in home-energy applications was also pioneered by the U.S.

Last year, I decided to do my bit for energy conservation and set out to equip my house with solar power. My wife and I talked with four local solar firms. As part of our due diligence, I checked where they get their photovoltaic panels -- the key part of the system. All the panels they use come from China. A Silicon Valley company sells equipment used to manufacture photo-active films. They ship close to 10 times more machines to China than to manufacturers in the U.S., and this gap is growing. Not surprisingly, U.S. employment in the making of photovoltaic films and panels is perhaps 10,000 -- just a few percent of estimated worldwide employment.

Advanced Batteries

There’s more at stake than exported jobs. With some technologies, both scaling and innovation take place overseas. Such is the case with advanced batteries. It has taken years and many false starts, but finally we are about to witness mass- produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the U.S. share of lithium-ion battery production is tiny.

That’s a problem. A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer-electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies didn’t participate in the first phase and consequently weren’t in the running for all that followed. I doubt they will ever catch up.

Job Creation

Scaling isn’t easy. The investments required are much higher than in the invention phase. And funds need to be committed early, when not much is known about the potential market. Another example from Intel: The investment to build a silicon manufacturing plant in the 1970s was a few million dollars. By the early 1990s, the cost of the factories that would be able to produce the new Pentium chips in volume rose to several billion dollars. The decision to build these plants needed to be made years before we knew whether the Pentium chip would work or whether the market would be interested in it.

Lessons we learned from previous missteps helped us. Years earlier, when Intel’s business consisted of making memory chips, we hesitated to add manufacturing capacity, not being sure about the market demand in years to come. Our Japanese competitors didn’t hesitate: They built the plants. When the demand for memory chips exploded, the Japanese roared into the U.S. market and Intel began its descent as a memory-chip supplier.

Intel Experience

Though steeled by that experience, I remember how afraid I was as I asked the Intel directors for authorization to spend billions of dollars for factories to make a product that didn’t exist at the time for a market we couldn’t size. Fortunately, they gave their OK even as they gulped. The bet paid off.

My point isn’t that Intel was brilliant. The company was founded at a time when it was easier to scale domestically. For one thing, China wasn’t yet open for business. More importantly, the U.S. hadn’t yet forgotten that scaling was crucial to its economic future.

How could the U.S. have forgotten? I believe the answer has to do with a general undervaluing of manufacturing -- the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. It’s not just newspaper commentators who spread this idea.

Offshore Production

Consider this passage by Princeton University economist Alan S. Blinder: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.”

I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.

Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best economic system -- the freer, the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.

No. 1 Objective

Such evidence stares at us from the performance of several Asian countries in the past few decades. These countries seem to understand that job creation must be the No. 1 objective of state economic policy. The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.

The rapid development of the Asian economies provides numerous illustrations. In a thorough study of the industrial development of East Asia, Robert Wade of the London School of Economics found that these economies turned in precedent- shattering economic performances over the 1970s and 1980s in large part because of the effective involvement of the government in targeting the growth of manufacturing industries.

Consider the “Golden Projects,” a series of digital initiatives driven by the Chinese government in the late 1980s and 1990s. Beijing was convinced of the importance of electronic networks -- used for transactions, communications and coordination -- in enabling job creation, particularly in the less developed parts of the country. Consequently, the Golden Projects enjoyed priority funding. In time, they contributed to the rapid development of China’s information infrastructure and the country’s economic growth.

Job-Centric Economy

How do we turn such Asian experience into intelligent action here and now? Long term, we need a job-centric economic theory -- and job-centric political leadership -- to guide our plans and actions. In the meantime, consider some basic thoughts from a onetime factory guy.

Silicon Valley is a community with a strong tradition of engineering, and engineers are a peculiar breed. They are eager to solve whatever problems they encounter. If profit margins are the problem, we go to work on margins, with exquisite focus. Each company, ruggedly individualistic, does its best to expand efficiently and improve its own profitability. However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling, we don’t just lose jobs -- we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.

Blade Didn’t Drop

The story comes to mind of an engineer who was to be executed by guillotine. The guillotine was stuck, and custom required that if the blade didn’t drop, the condemned man was set free. Before this could happen, the engineer pointed with excitement to a rusty pulley, and told the executioner to apply some oil there. Off went his head.

We got to our current state as a consequence of many of us taking actions focused on our own companies’ next milestones. An example: Five years ago, a friend joined a large VC firm as a partner. His responsibility was to make sure that all the startups they funded had a “China strategy,” meaning a plan to move what jobs they could to China. He was going around with an oil can, applying drops to the guillotine in case it was stuck. We should put away our oil cans. VCs should have a partner in charge of every startup’s “U.S. strategy.”

Financial Incentives

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars -- fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability -- and stability -- we may have taken for granted.

I fled Hungary as a young man in 1956 to come to the U.S. Growing up in the Soviet bloc, I witnessed first-hand the perils of both government overreach and a stratified population. Most Americans probably aren’t aware that there was a time in this country when tanks and cavalry were massed on Pennsylvania Avenue to chase away the unemployed. It was 1932; thousands of jobless veterans were demonstrating outside the White House. Soldiers with fixed bayonets and live ammunition moved in on them, and herded them away from the White House. In America! Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it.

Choice Is Simple

Every day, that Palo Alto restaurant where I met the Chinese venture capitalists is full of technology executives and entrepreneurs. Many of them are my friends. I understand the technological challenges they face, along with the financial pressure they are under from directors and shareholders. Can we expect them to take on yet another assignment, to work on behalf of a loosely defined community of companies, employees, and employees yet to be hired? To do so is undoubtedly naive. Yet the imperative for change is real and the choice is simple. If we want to remain a leading economy, we change on our own, or change will continue to be forced upon us.

(Andy Grove, senior adviser to Intel, was the company’s chief executive officer or chairman from 1987 until 2005. The opinions expressed, featured in the July 5 issue of Bloomberg Businessweek, are his own.)

July 02, 2010

While the June jobs report shows a loss of 125,000 jobs in the US economy and there are five job seekers for every available job, there is one area in which there are plenty of jobs available: commission only sales jobs. The US economy is based on the forced feeding of consumer items to consumers. Since 70% of GDP is based on consumption, obviously, to get out of the recession, at least one way of doing it is to get consumers to buy more stuff, not that they really need it. Actually, consumers would be better off saving their money and paying down their debts. But the reality of the situation is that there is an army of salesmen out there whose purpose in life is to get you to buy more stuff. The whole advertising industry exists in order to get you to buy more stuff.

So there will always be jobs available for people who are really good at getting you to buy stuff. And especially there are all kinds of jobs available for people who are willing to work on a commission only basis. Think about it. If you can add to a company's bottom line without costing the company anything, why you are so welcome to participate in the economy. Selling is an area where there are an infinite number of jobs available and you don't even need a college education. In fact you don't need any education at all if somehow you have a talent for selling. I knew a fellow who barely made it through the eighth grade, who my educator parents felt would have a hard time making it through life. To their great surprise, within a couple of years of graduating from high school, he was making $200,000. a year. And that was 50 years ago! This guy had a talent for selling and the company he worked for could care less whether he had a college education or any education at all or was considered by the educated snobs to be as dumb as shit. He could sell, and that was all that mattered.

Like a French goose being force fed corn in order to make fois gras, a delicacy made from goose liver, the US economy requires force feeding of consumers by relentless advertising and an army of salesmen. There is no need for technicians to make better products. There is only a need to sell products that are sitting on warehouse shelves and need to be moved. A salesman's job is to move product out the door. If he can do that and hence increase company profits, any company would be foolish not to enter into a relationship with such a person. I hasten to add that I did not say to employ that person since employment entails things like paying a base salary, providing benefits etc. Companies don't want to take the risk of paying out money to people who may or may not bring in revenues so the new model is commission only sales jobs without benefits. Therefore, the company takes no risk. If someone is a dud at selling, the company has lost no money. On the other hand, if someone is a whiz at selling the company is only to happy to give him or her a cut of the profits.

There is no lack of products in the US or the world economy. There is only a lack of demand. That's why supply side economics, as espoused by Reagan and conservative Republicans, is so ridiculous. And the lack of demand is because of the lack of jobs. Not everyone is a whiz at selling. Perhaps colleges and universities, instead of training people to do some technical job, should be training salesmen. People out of work are people with no talent for selling. But then sales talent is more of a natural thing than something you can be trained to do. You either have it or you don't. No amount of training can make a virtuoso out of someone with a tin ear. Like musical talent, you either have it or you don't. Which leaves most people back in the situation of figuring out what they're good at which is at all marketable.

Perhaps the whole market economy which is predicated on producing, selling and consuming items needs to be rethunk. What we actually need is to build more and better infrastructure, get off of fossil fuels, live in a better relationship with the environment etc. But the capitalist economy is predicated on making and selling individualized products into the consumer economy. There's a disconnect here. Maybe a different economic model is necessary, a model which takes into account the externalities of production like how much carbon is dumped into the atmosphere. Maybe instead of government being entirely hands off as libertarians would have it, government needs to take on the role of providing an overarching vision for the economy. This is exactly what the Chinese government is doing. They are deciding at the top most level where the economy should be going, and then they are interacting with Chinese businesses and industrial firms to proceed in that direction. Are they micromanaging every little thing these industries and businesses are doing? I don't think so. But they do have an industrial policy and an overarching vision, something for which the US is totally lacking by political intent. Our forefathers never intended for the government to take on such a role, so they say.

While western economies are preoccupied with financialization and worrying about the fact that bond markets and hedge funds can bankrupt their whole country, the Chinese are forging ahead (without the speculators I might add), making investments to procure natural resources in places like Africa, Iraq and Afghanistan. While the US spends tons of money fighting wars, the Chinese have come right in behind them using their money to make investments. US military might has not been successful in producing the effect of US business gaining the dominant role in benefiting from the arenas in which the US has been fighting wars. In Iraq, the Chinese have benefited more from the elimination of Sadam Hussein and the opening up of that country to foreign investment than the US which has spent billions of military dollars there. The same is true in Afghanistan.

For the Chinese, evidently, and contrary to Chairman Mao's adage, political power does not come out of the barrel of a gun. Instead they are following Sun Tzu's advice as prescribed in The Art of War that it's best to achieve your objectives, if possible, without firing a shot. So they are letting the US fire the shots as the US goes more deeply in debt to them. They are loaning the US the money to bankrupt itself fighting wars while they reap the benefits. The bitter struggle with Taiwan, for example, in which the US has invested billions of military-industrial complex dollars on the side of Taiwan, has been peacefully resolved by the Chinese themselves who have realized that it is better to do business together than to fight each other. The US though is still firing a lot of worthless shots making the world safer for Chinese investment while wasting money on war and not getting any of the supposed benefits.

The Chinese Aren’t Coming

Chen Yunlin, chairman of China’s Association for Relations Across the Taiwan Strait, front right, presses the flesh with his counterpart, Chairman of Taiwan’s Straits Exchange Foundation Chiang Pin-kung, after a signing ceremony in Chongqing, China, on Tuesday.

On Tuesday, the Cold War finally ended with a historic trade agreement between China and Taiwan that will dramatically integrate the mainland’s economy with that of its claimed breakaway province. Peace has descended on the most contentious point of conflict between East and West for the past six decades—but don’t expect the folks at the Pentagon or their military contractors to celebrate. The remaining raison d’être for much of their $700 billion budget has suddenly collapsed, and with it the claim on huge profits and high-flying careers.

The bulk of that money, higher in constant dollars than at any other time since World War II, is spent on weapons systems to fight a sophisticated Cold War enemy that went out of business with the breakdown of the Soviet Union. And the so-called “war on terror” does not cut it as a substitute excuse for feeding the immense maw of the military-industrial complex. It is laughable to suggest that the ever more complex and costly high-tech weaponry we continue to build is needed to defeat an opponent armed with the box cutters used by the 9/11 hijackers or a primitive roadside bomb set off by an Iraqi insurgent.

When Sen. Joe Lieberman makes his annual case for those $2.5 billion submarines produced in his home state of Connecticut, his central argument has been that the Chinese are building equally sophisticated weapons that threaten us. “If we do not move to produce two submarines a year as soon as possible, we are in serious danger of falling behind China,” he thundered during one Senate debate. Obviously, it’s harder to make the case that submarines are needed to capture al-Qaida terrorists holed up in some landlocked nation’s mountain caves. So too with the ever more advanced arsenal designed to penetrate enemy defenses not even built when those Cold War adversaries still operated.

“The Chinese are coming” became the last refuge of war-profiteering scoundrels once the Russians started cutting back dramatically, but this alarm was never plausible. The authoritative quadrennial Defense Department reports have always made clear that China has at most threatened to become a regional power with Taiwan as its focus. Yet that pathetic excuse for the U.S. spending as much on its military as do the rest of the world nations combined seemed plausible to most in Congress who voted for massive military appropriations even as our government had to borrow money from the Chinese to cover our deficits.

Then those treacherous Chinese, both the mainland Communists and their feuding Taiwan-based cousins, had to go and ruin a good thing by going way beyond kissing and making up. Even when they were verbally warring they were still doing business together during this past decade. Trade between the two is already a hefty $110 billion, 41 percent of Taiwan’s exports, but the new agreement will much expand that by ending tariffs on key products while opening up the financial services industry to investors from what was once an impenetrable cross-strait divide. Taiwanese business investment on the mainland is already massive, but now it will enter the realm of the mainland’s high finance with the world economy as its playground.

The prospect of war between the two, already vastly diminished from Cold War highs, will soon not be possible without hitting their own investment assets on the other side. Which is exactly the peace of the new world order that some U.S. leaders, most prominently the first President Bush, had once welcomed. The question is whether Americans truly believe they can be winners in a world built on expanding trade rather than on military tension.

One has to wonder about our priorities when Congress cannot find the $34 billion needed to continue unemployment payments for six months to 1.7 million workers thrown out of jobs but never questions that sort of spending on military hardware with no logical purpose. The proud promise of American capitalism, often in conflict with a drearier reality, was that our economy did not need military conquest to succeed. Now it is the Chinese, of varying ideological disposition, the heirs of Mao Zedong and Chiang Kai-shek, who will test our commitment to that principle. Clearly those former enemies have concluded that power, in the modern world economy, does not grow out of the barrel of a gun, even from a very big and enormously expensive one.

The China-Taiwan agreement and its implications also raise some questions for Americans: How does a modern nation obtain national security? Are we more secure with our permanent war economy, or is the pursuit of peace through trade and diplomacy, as the formerly most bitter of Chinese enemies are demonstrating, a better way?

July 01, 2010

AL-AHDAB OIL FIELD, IRAQ -- China didn't take part in the U.S.-led invasion of Iraq or the bloody military battles that followed. It hasn't invested in reconstruction projects or efforts by the West to fortify the struggling democracy in the heart of the Middle East.

But as the U.S. military draws down and Iraq opens up to foreign investment, China and a handful of other countries that weren't part of the "coalition of the willing" are poised to cash in. These countries are expanding their foothold beyond Iraq's oil reserves -- the world's third largest -- to areas such as construction, government services and even tourism, while American companies show little interest in investing here.

"The U.S. really doesn't know what to do in Iraq," said Fawzi Hariri, Iraq's industry minister. "I have been personally, as the minister of industry, trying to woo U.S. companies into Iraq. There is nothing yet. Nothing tangible."

In the past two years, Chinese companies have walked away with stakes in three of the 11 contracts the Iraqi Oil Ministry has signed in its bid to increase crude output by about 450 percent over the next seven years. They also renegotiated a $3 billion deal that dates to when Saddam Hussein was in power.

Only two American firms won stakes in oil deals, an underwhelming showing that industry analysts and U.S. officials say reflects deep concerns about doing business in a country besieged by insecurity, corruption and political turmoil.

"They made a mistake and overestimated the risk," said Ruba Husari, an oil analyst in Baghdad who runs the Iraq Oil Forum, a trade Web site. "I think they did not realize on the spot that it was the biggest window of opportunity, and they missed out."

In an effort to meet the rising energy demands of its fast-growing economy, China has invested aggressively in oil-rich nations. Chinese companies have made notable inroads in the Middle East and Africa, in part because of a higher tolerance for risk and a savvy diplomatic corps that has laid the groundwork for advantageous deals.

Iraqi officials say they are heartened by their expanding ties with China but are still pursuing investment from other nations.

"They have gained a number of plum contracts for energy," Iraqi Foreign Minister Hoshyar Zebari said of the Chinese. "Wherever there is an oil well in the world, you'll see a Chinese flag next to it."

Working 'as partners'

At al-Ahdab oil field in Wasit province, roughly 100 miles south of Baghdad, about 200 Chinese laborers have begun work under a contract renegotiated in 2008 by a Chinese state-owned consortium, Al Waha Oil Co. Workers in red jumpsuits operate imported oil rigs alongside their Iraqi counterparts. Their workplaces are heavily protected by barricades and guards.

"People know they didn't participate in the invasion or the sanctions, and they have an old participation in Iraq that predates Saddam Hussein," said Ahmed Abdul-Redha al-Zanki, the senior engineer for Iraq's North Oil Co., which is working with the Chinese to develop the field. "They work with us as partners," in stark contrast to the condescending practices of Western companies, he said.

The French and Chinese have also made forays into the cement industry. The Chinese have started building a billion-dollar power plant in the south. The Chinese and the United Arab Emirates are in advanced talks to build residential complexes. The French automaker Renault and Germany's Mercedes-Benz are in advanced talks to make trucks for industrial transport, according to Iraqi officials. The South Koreans signed a memorandum of understanding to build a multimillion-dollar steel mill in the south and a power plant, and the Turks have scored a series of construction and government services contracts.

Except for a $3 billion General Electric contract to provide power-generating equipment and a Boeing deal, Iraqi and U.S. officials are hard pressed to point to any significant U.S. investment in Iraq. Outside of the two oil service contracts that American companies were awarded and U.S. government contracts, the United States "consistently ranks in the bottom" among investors, according to a 2009 study by Dunia Frontier Consultants, which tracks private investment in Iraq.

The United Arab Emirates is Iraq's top private investor, with plans to invest $70 billion across the country, followed by South Korea, a 2010 study by the same firm said. Turkey and Iran also are major trade partners with Iraq.

"We're coming off a financial crisis," a senior U.S. diplomat said, speaking on the condition of anonymity because of embassy rules. "You have to look at your bottom line. It's not the best time to be suddenly in the market as a new place to invest."

Worth the risk?

U.S. companies will probably continue to shy away, particularly after the State Department's latest Iraq investment climate assessment, issued in March.

"Potential investors should prepare themselves for significant security costs; cumbersome and confusing procedures for business visas or new business registrations; long payment delays on some Iraqi government contracts; and sometimes unreliable, non-transparent dispute resolution mechanisms," the assessment said. "Allegations of corruption are still endemic, and the legacy of central planning and inefficient state-owned enterprises continue to inhibit economic development."

But several countries have come to see Iraq as an incredibly promising market despite the risks.

The French government, which also did not participate in the war, recently set up a center in Baghdad to support French companies seeking to test the waters.

"This is a rich country," French Ambassador Boris Boillon said. "In this world of recession, in this period of global crisis, we need to get growth and expansion wherever you can find it."

Last fall, the French government helped arrange for 100 French businessmen to attend a five-day trade fair in Baghdad. Most other European and American delegations decided at the last minute that attending would be too risky.

The French chartered five buses and ferried the businessmen daily to the fairgrounds.

"I think Americans are fed up," Boillon said. "There is Iraq fatigue in the U.S. When you tell an American: 'You can go to Iraq and make business, because there are opportunities,' the guy thinks twice and says, 'Oh, Iraq -- that bloody country.' "

June 28, 2010

Tom Friedman came up with this metaphor on Fareed Zakaria's GPS Sunday show. The US in Afghanistan is like a jobless couple trying to adopt a special needs child. 46 out of 50 US states are bankrupt, the Federal government is deeply in debt, yet the US is "committed" to fighting a war in Afghanistan that doesn't seem to have any purpose or any chance of success. Originally the US went into Afghanistan to "get" Osama bin Laden whose name has hardly been mentioned by the current administration or anybody else for years. Now the war has morphed into a counterinsurgency which means that we need to build waste water plants and power stations in addition to winning the hearts and minds of the people and defeating the Taliban. This always happens in unwinnable wars: we decide to do nation building instead of winning the unwinnable. It puts a nice patina on a ridiculous situation and covers up a lack of knowing what the hell we're there for. And it saves face. The world's greatest superpower can't be seen as losing a war to the world's most retarded country, now can it?

Friedman asks "why do we have to train the Afghan army? The Taliban don't need any training, and they're fighting us to a draw. They're illiterate, they can't even read a map, yet they're being successful and the US is not." He says these are the questions even a child would ask. I agree. A child might wonder 1) why we're using military force to win the hearts and minds of the people instead of just building infrastructure without the guns being involved, and 2) why we are training an Afghan military force when the Afghans have been doing nothing but fighting foreign intruders for hundreds of years. Don't they have enough military training already? And a child might ask why we are fighting them with military equipment which costs millions of dollars that can be blown up with a $10. IED?

When the US is just as likely to be struck by a terrorist who happens to be a US citizen, the idea of spending hundreds of billions of dollars trying to wipe out al Quaeda and ending up killing hundreds of innocent civilians instead is absolutely ridiculous. Meanwhile, other contries like China are building infrastructure in Afghanistan at the same time we're fighting a war there. They are the ones winning hearts and minds. We could be doing the same thing too for far less money and minus the military prescence. Hasn't the Pentagon noticed - al Quaeda isn't even there any more? They're in Somalia and Yemen among other places. The military always has to have some rationale for their interminable claim on US Treasury funds. Why it's unthinkable that the military budget should be slashed; better to make up some excuse to stay in Afghanistan forever.

KABUL, Afghanistan — Behind an electrified fence, blast-resistant sandbags and 53 National Police outposts, the Afghan surge is well under way.

But the foot soldiers in a bowl-shaped valley about 20 miles southeast of Kabul are not fighting the Taliban, or even carrying guns. They are preparing to extract copper from one of the richest untapped deposits on earth. And they are Chinese, undertaking by far the largest foreign investment project in war-torn Afghanistan.

Two years ago, the China Metallurgical Group Corporation, a Chinese state-owned conglomerate, bid $3.4 billion — $1 billion more than any of its competitors from Canada, Europe, Russia, the United States and Kazakhstan — for the rights to mine deposits near the village of Aynak. Over the next 25 years, it plans to extract about 11 million tons of copper — an amount equal to one-third of all the known copper reserves in China.

While the United States spends hundreds of billions of dollars fighting the Taliban and Al Qaeda here, China is securing raw material for its voracious economy. The world’s superpower is focused on security. Its fastest rising competitor concentrates on commerce.

S. Frederick Starr, the chairman of the Central Asia-Caucasus Institute, an independent research organization in Washington, said that skeptics might wonder whether Washington and NATO had conducted “an unacknowledged preparatory phase for the Chinese economic penetration of Afghanistan.”

“We do the heavy lifting,” he said. “And they pick the fruit.”

The reality is more complicated than that. The Chinese bid far more for the mining rights to the Aynak project and promised to invest hundreds of millions more in associated infrastructure projects than other bidders. It is a risky venture that has not yet proved to be economical, and it has already been dogged by allegations of bribery.

But the Aynak investment underscores how China’s leaders, flush with money and in control of both the government and major industries, meld strategy, business and statecraft into a seamless whole. In a single move, Beijing strengthened its hold on a vital resource, engineered the single largest investment in Afghan history, promised to create thousands of new Afghan jobs and established itself as the Afghan government’s pre-eminent business partner and single largest source of tax payments.

So I ask you - who is winning the hearts and minds of the Afghani people - the US who is mainly killing there and by the way is building a few water treatment plants or China who is investing big time, becoming a business partner and building infrastructure? Why isn't China worried about bin Laden, al Quaeda or the Taliban? I hate to say it but the US is there like it was in Vietnam, like it is in Iraq - mainly to save face. They've staked their rep on "winning" in Afghanistan. Meanwhile, the world goes on with China taking the lead in Afghanistan and elsewhere on a peaceful mission right in the middle of a war. How much more ridiculous does it get?

And then there is Greg Mortenson. One individual, Greg Mortenson, has built hundreds of schools there. Why do we think it takes the US military to build infrastructure? This is just so dumb, it's unbelievable! And to think a smart guy like Obama got sucked into this mess. He and Petraeus should use all their smarts to buy off the Taliban like they bought off the "bad guys" in Iraq (under the guise of a surge), declare victory and get out. Most Americans believe we "won" in Iraq although the same crap is still going on there - mosques being blown up, millions without electricity etc.

They should put Greg Mortenson in charge of an agency to build schools in Iraq, give him a billion dollars and let it go at that.

The US spends a pittance on Homeland Security and a paltry sum on US infrastructure while it devotes the major part of its resources to military adventurism. The US is spending $1 billion per year for every soldier in Afghanistan! Shouldn't that give us pause? Shouldn't we reevaluate our priorities? Then we have a huge recent victory in the Senate to pass a $15 billion jobs bill? [Ed. note: A more recent unemployment extension was voted down in the Senate!] That's just 15 soldiers worth a year in Afghanistan! It's nothing. And while the US military destroys Afghanistan and kills civilians, one guy is going around and building schools. In "Three Cups of Tea" Greg Mortenson tells about his experiences in Afghanistan that led him to go back there and build schools - one at a time. If one guy can do this kind of good, how much good could the US government with all its might and resources do if it chose to, instead of choosing to kill civilians in a quest for the fool's gold of eliminating Taliban leadership?

Counterinsurgency is just another name for "let's just keep a military prescence there forever." Meanwhile, the peaceful world is just going on without us including China which is cutting deals in Afghanistan in the midst of a war in which the US thinks it's the central actor. China is simply ignoring us, and Greg Mortenson is building schools without taxpayer money. Go figure!

And I must say that the Chinese form of state capitalism allows it to do things that the US can't. The US can get unlimited amounts of money for its military, but it can't (as a nation) spend billions for peaceful purposes or cut business deals like China can because that would be socialism. The US model requires that only private enterprise can cut business deals. The Chinese model allows cooperation between business and government; government can even direct business and that's why China (as a nation) can be in Afghanistan extracting raw materials and building infrastructure. The US model would not let the US government be involved in such proceedings. Instead, billionaire philanthropists like Bill Gates and Warren Buffet would have to do that. But they're more interested in health issues and working in "pacified" nations.

Sun Tzu, the Chinese philospher who wrote The Art of War emphasized the Taoist approach of obtaining one's goals without firing a shot if possible. China is well on its way to becoming the 21st century's ascendant nation uses Sun Tzu's principles. China is running its chief rival into debt while the US fights futile wars. At the same time China is tying up valuable world resources by peaceful means not wasting a yuan on ammo. A totally brilliant strategy!

Mark McNeilly writes in Sun Tzu and the Art of Modern Warfare that a modern interpretation of Sun and his importance throughout Chinese history is critical in understanding China's push to becoming a superpower in the 21st century. Modern Chinese scholars explicitly rely on historical strategic lessons and The Art of War in developing their theories, seeing a direct relationship between their modern struggles and those of China in Sun Tzu's time. There is a great perceived value in Sun Tzu's teachings and other traditional Chinese writers, which are used regularly in developing the strategies of the Chinese state and its leaders.

Sun Tzu in "The Art of War" said that the best way to overtake your enemies is without even firing a shot. This is happening before our eyes as the Chinese have overtaken the US economically, effectively turning the US into a client state. The role of Europe in providing adequate safety nets for its citizens while not investing heavily in weaponry has had somewhat the same effect ironically. The Europeans do not have the same fear of terrorism evidently that the US does. Why else are they not sending a whole lot of troops to Afghanistan? It's as if they're saying "well, if you (the US) want to waste your money on military adventures, go ahead, but we'd rather spend ours on the welfare of our people."

If the US is foolish enough to continue espousing "free trade" when the result has been massive trade deficits and the export of its manufacturing base to China, then the US has become a sclerotic old man who can't act with any intelligence in his own interests. If the US political system allows one party to say "no" to everything when it is of paramount importance to act now with no time to waste, then the US is only hastening its own decline.

June 26, 2010

Rich people complain about the fact that they are paying more than their fair share of Federal income taxes. If you think that everyone, rich or poor, should pay the same amount of income tax, this is true. Of the $8.8 trillion paid in income tax in 2007, the top 1%, income wise, paid over 40% or $451 billion according to an IRS report. (Note: this information was provided by Frank Thomas.) This was more than the bottom 95% paid. However, for all they paid, they still made tremendous gains in income and wealth while the middle class stagnated, and tax policies were largely the reason why the rich got richer while the poor got poorer.

The fact of the matter is that, as late as 1980, the top 1 percent by income in the United States had about nine percent of total national income. But since then, you’ve had increasing concentration of income and wealth to the point that by 2007 the top 1 percent was taking home 21 percent of total national income. Now, when they’re taking home that much, the middle class doesn’t have enough purchasing power to keep the economy growing. That was hidden by the fact that they were borrowing so much on their homes, they kept on consuming because of their borrowing. But once that housing bubble exploded, it exposed the fact that the middle class in this country has really not participated in the growth of the economy, and over the long term we’re not gonna have a recovery until the middle class has the purchasing power it needs to buy again.

The top tax rate under Eisenhauer was 92%; under Nixon it was 77%. When Reagan entered office, it was 69%; when he left, it was 28%. Under Reagan the national debt tripled due to the fact that he had dropped income tax rates so low. Clinton raised tax rates to 39.6%, had a booming economy and actually balanced the Federal budget and paid down the national debt!

There are two purposes for collecting taxes: 1) to fund the government to do the various things that we want government to do and 2) to promote economic growth while lessening income inequality. Therefore, tax rates have to be high enough in general so that the government doesn't go into debt and 2) tax rates have to be progressive enough that income and wealth inequality doesn't increase. The top tax rate today is 35%. But wealthy people pay on average an even lower rate due to the fact that most of their income is in capital gains which are taxed at 15%.

In addition when tax rates were 92% under Eisenhauer CEO pay was aoround $2 or $3 million. This is because higher amounts would have been essentially confiscated and so money was plowed back into the business instead of being dispensed as CEO pay. Today most CEO pay is in the form of stock options which means that getting stock prices higher is the main concern of most CEOs and, when they cash in those options, they only pay taxes at the 15% capital gains rate. The fairness of the tax structure needs to be made clearer in that the first increment of money made by all people is taxed at the same rate while higher increments are taxed at progressibvely higher rates. What that means, for example, is that billionaires should pay the same rate on their first $100,000. of income as do those whose total income is $100,000. Fair enough? It's only on higher increments, say the second and third increments of $100,000. and so on that billionaires should pay a higher rate of taxation. Lumping all of this together into one overall rate hides the fact that different increments of income, as they should be, are taxed at different rates. Obama is starting to make this distinction clear by saying that he will raise taxes only on those making more than $250,000. a year while keeping taxes on those making less than $250,000. the same as they are. He could make the distinction even clearer by pointing out that those making over $250,000. are in fact taxed at the same rate as those making less than $250,000. on the first $250,000. of their income. It is only on higher increments that they should be taxed more.

The net result of the lowering and deprogressivizing of the tax rates over the last 30 years is that 1) the government has gone broke and 2) income and wealth inequality has continued to increase. So what should be done to get our fiscal house in order? The government needs to raise top tax rates while keeping rates on the middle class and the poor at the same level or even lowering them. The government also needs to find other ways to raise revenues and reduce expenditures such as eliminating subsidies to oil companies and corporate farmers and taxing financial transactions. Ending wars and reducing the size of the military-industrial complex would also produce large cost savings. The government needs to be run more like a capitallist enterprise, that is, it needs to be in the business of capital accumulation instead of capital depletion which Repuiblican policies of lowering taxes have produced.

Republican policies of giving tax breaks to the rich need to be eliminated. Even though the rich pay most of the income taxes, the rate at which they are now paying isn't sufficient to prevent widespread inequality and to prevent the government from taking on massive debt while their percentage of the national income continues to increase. Eliminating fraud, abuse and war would also save the government money. State capitalist economies, such as China and to a lesser extent some European economies, are building government wealth while the US model is resulting in increasing debt. What this means is that those nations as nations, despite the fact that they contain a lot of poor individuals, are growing stronger while the US as a nation, despite the prescence of a lot of rich individuals, is growing poorer. When the state acts as a capitalist, that is, the state is in the business of accumulating money or capital, that state will eventually dominate states like the US whose national model seems to be to let rich individuals and corporations cannibalize the national treasury for their own private purposes. Lobbyists and recent Supreme Court decisions have promoted the interests of the rich while neglecting the interests of the poor, the middle class and the government itself, and this means that the US government, as a capitalist, will find itself not only increasingly poor but eventually bankrupt. Right now it's in the position of having a credit card with no limit, it can borrow as much as it wants to. But some day that will no longer be the case, as many individuals have recently found out, and the chickens will come home to roost. The resultant austerity will not be pleasant for the American people nor for those whose interests reside chiefly in the military-industrial complex.

June 05, 2010

The US has reached some milestones recently. It has passed the $1 trillion mark for dollars spent on wars in Iraq and Afghanistan. Almost simultaneously it has surpassed the 1000 death mark in Afghanistan. Has it been worth it? Hardly. A CIA drone operation recently took out al Quaeda's number 3 along with his wife, children and grandchildren, hardly a surgical strike. It reminds me of the old days when they assassinated not only the king but his entire family so there would not be any heirs apparant to come back and lay claim to the throne. I always thought that was barbaric.

But more than that, these wars of choice in Iraq and Afghanistan have consumed resources while the war on the US border has been ignored. Any terrorist worth his salt can get over that porous border. Guns and money are going south to drug lords who are murdering people right and left in Mexico while extending their reaches into the US. Drugs and people are coming north across the border. No other nation tolerates such a breach of its borders and allows drug wars to take place along its borders. Maybe the drones are misplaced. They should be taking out drug lords in Mexico and patrolling borders in the US.

The US is way overspending on its military industrial complex and on its perpetual wars. This alone will lead to the ruin of the US. While the US spends its treasure on war, it neglects its infrastructure, educational system (thousands of teachers are being laid off), its cities and states which are also virtually bankrupt. While the US spends its treasure on wars, China studiously avoids them preferring the roles of banker to the US and investor in worldwide resources. China is getting something for its money: interest on US debt, access to natural resources all over the world and a 21st century infrastructure with investment in high speed transportation systems and green energy. The US, meanwhile, continues to pile up debt and kill innocent civilians thereby guaranteeing that new terrorists will continuelly be in the process of being generated now and in the future. It continues to engage in meaningless battles for the hearts and minds of people whose hearts and minds are not up for sale. It's pointlessness is carried to extreme levels. It's indebtedness to China continues apace as China wins hearts and minds by partnering with people around the world in peaceful pursuits.

The US is becoming a feudal fiefdom presided over by Wall Street and huge corporations which essentially run government because they can buy government. In a sane world the President's salary should be on a par with executive salaries at the largest corporations. Today the President's salary is a fraction of the billions made by CEOs and hedge fund managers. The President's salary doesn't even give him a place on the Fortune 400 list of billionaires. And this mismatch is true throughout government. People get elected to office in order that they can later be hired as lobbyists by large corporations and then make their real money.

Middle class jobs have gone out the window. Despite Bush's attempt to make capitalists out of the middle class by getting them invested in the stock market with 401ks and running up the values of their houses which they could then use as ATMs, the housing bubble collapsed leaving the middle class with a ton of debts and few job prospects. The latest job figures are 41,000 private sector jobs added last month. This is pathetic. We need 100,000 jobs added per month just to break even let alone make up the deficit in job losses over the last few years. The only jobs are in the military-industrial complex, the financial sector and in health care. Where are the jobs in 21st century technologies like green energy and transportation infrstructure? There aren't any. China has the model that the world is starting to emulate. Why? Because they are being so successful compared to the US. They are not at war. They are wealthy controlling trillions of US debt and they are investing hugely in infrastructure and 21st century technologies. Meanwhile, the US is laying off teachers and raising tuitions at public universities.

As the US becomes more decadent being eaten away by war and debt, with a non-functional and sclerotic political system which has ceased to serve the interests of the average person, China is unfettered by the chains that bind the US and is moving forward at a prodigious pace. Recently, China has outlawed the use of torture and has eliminated the death penalty. Which country is moving forward along the path of peace? Which country are other countries starting to emulate? The country that has invested $1 trillion in campaigns of death and destruction while its infrastructure decays or the country that is spending $300 billion in high speed rail and is engaged in peaceful pursuits? While the US decries China's authoritarian political system, it's a political system that, unlike the US, can get things done with a minimum of fuss.

April 09, 2010

President Obama is opening up certain portions of the coastline for oil drilling. Well and good, but he missed the boat insofar as changing the nature of off shore drilling. The oil located offshore in US waters is owned by the taxpayers of the US. Yet all the profits will go to the oil companies. The US taxpayers are essentially giving the oil away to the oil companies.

Not so in Norway. Every cent of profits from offshore drilling is split 50-50 with the Norwegian taxpayers. The US with its desperate need for new revenues and its humungus national debt, nevertheless, will give all the profits to private corporations. Norway funds its social security program with the profits derived for the people of Norway from offshore drilling. It essentially subcontracts out the process for retrieving the oil to private companies who then are obliged to split the profits with the taxpayers.

But then all resources in the US are under private corporate control so there is nothing that would serve as a source of national wealth. Contrast that with Norway in which the state has a 50% interest in all oil sales. That still leaves 50% for Big Oil. For the US, however, 50% is not enough. The US gives essentially all the profits from oil finds on its property to Big Oil. Other states share the profits among their citizens and private enterprise. The US essentially has a weak central government controlled by lobbyists representing corporate interests. The US government itself, supposedly a democracy, does nothing to accumulate wealth in behalf of its citizens the way other nations do. Even Kazahkstan, the butt of the movie Borat's jokes, has a Sovereign Wealth Fund. Kazahkstan may get the last laugh while the US has to eat crow. Are you ready for Borat, the sequel?

Uncle Sucker, er uh, Sam has a Sovereign Debt Fund while other countries have Sovereign Wealth Funds. The US accumulates debt while other countries accumulate wealth. While the US spends trillions fighting needless wars of aggression, China is eating our lunch by loaning us money and buying up natural resources around the world. Thus China is really winning any future resource wars without firing a shot. China is furthering its own interests by totally peaceful means. China's system is essentially state capitalism, which means that the nation as a whole is in the business of accumulating wealth. Not so in the US where private corporations are in the business of stripping the US government of its wealth. A recent example is the trillions of dollars spent in bailing out US banks, but other examples abound.

Sun Tzu, the Chinese philospher who wrote The Art of War emphasized the Taoist approach of obtaining one's goals without firing a shot if possible. China is well on its way to becoming the 21st century's ascendant nation uses Sun Tzu's principles. China is running its chief rival into debt while the US fights futile wars. At the same time China is tying up valuable world resources by peaceful means not wasting a yuan on ammo. A totally brilliant strategy!

Mark McNeilly writes in Sun Tzu and the Art of Modern Warfare that a modern interpretation of Sun and his importance throughout Chinese history is critical in understanding China's push to becoming a superpower in the 21st century. Modern Chinese scholars explicitly rely on historical strategic lessons and The Art of War in developing their theories, seeing a direct relationship between their modern struggles and those of China in Sun Tzu's time. There is a great perceived value in Sun Tzu's teachings and other traditional Chinese writers, which are used regularly in developing the strategies of the Chinese state and its leaders.

Sun Tzu in "The Art of War" said that the best way to overtake your enemies is without even firing a shot. This is happening before our eyes as the Chinese have overtaken the US economically, effectively turning the US into a client state. The role of Europe in providing adequate safety nets for its citizens while not investing heavily in weaponry has had somewhat the same effect ironically. The Europeans do not have the same fear of terrorism evidently that the US does. Why else are they not sending a whole lot of troops to Afghanistan? It's as if they're saying "well, if you (the US) want to waste your money on military adventures, go ahead, but we'd rather spend ours on the welfare of our people."

If the US is foolish enough to continue espousing "free trade" when the result has been massive trade deficits and the export of its manufacturing base to China, then the US has become a sclerotic old man who can't act with any intelligence in his own interests. If the US political system allows one party to say "no" to everything when it is of paramount importance to act now with no time to waste, then the US is only hastening its own decline.

"I was very disappointed in Obama's message about exploring for fossil fuels offshore [in] Alaska where he apparently didn't adopt some version of Norway's policy that the government (the taxpayers) is the de facto owner of offshore property. Thus, this entitles the central government to be in a 50-50 partnership with oil firms for exploration and development of any finds. Government's equity contribution is the land while the oil firm's equity contribution is the exploration/development cash (equity) investment. Arrangements can be made that the oil firm gets FIRST an agreed 10% annual return on its investment, then the government gets its 10% return on a comparable imputed investment for the land, with any remaining profit/cashflow from the find's production lifecycle shared 50-50 between the partners.

"It's really quite stupid and irresponsible, if not downright cowardly, how we allow the major oil firms to gobble up all the profit and cashflow from exploitation of such scarce, precious natural resources. The oil firms will fight this with some standard arguments, but eventually a firm will enter into such a partnership arrangement, knowing full well how profitable many of the deeper water oil-gas finds can be. I saw firsthand offshore oil-gas joint ownership cooperations working nicely, for example, in Norway, when I was in the offshore construction and contracting business with some big Dutch players in the 70s -- particularly during the North Sea oil-gas discovery boom years. The offshore oil-gas partnership policy Norway started in the early 70s has led to the country's huge sovereign fund from which they are very wealthy just from the annual interest earned on the fund today."

So as the US founders and misses opportunities for reducing its deficit, other countries, notably China and Norway, are not missing any opportunity for increasing their wealth. The notion that the US is a rich nation while China is a poor nation is laughable. We've already debunked that. China is using the Taoist philosophy, the rope-a-dope philosophy of Muhammid Ali, if you will, to accomplish its goals by entirely peaceful means. Actually it should be applauded for that. Meanwhile, the US is stuck in its tracks, not being able to disengage from costly and futile wars, not being able to disengage from its own philosophy of free trade, deregulation and privatization even when that philosophy has been proven to be a failure and not being able to overcome its own sclerotic political system which is dominated by monied interests for the benefit of large corporations. The party of "no" is the party of complete and total capitulation and pre-sell-out to wealth and corporate power and domination. Obama has been able to put his finger in the dike of national regression, but when the Republicans retake power, they will open the floodgates of backwardness and ignorance.